Hypothetical

[Kerim]

If you were offered today 5 percent simple interest paid annually to open a 5-year CD (minimum $15,000), would you jump at it?

[Dividend Watcher]

Oh my, if this ain't a "it depends" situation.

If it's cash for a purpose or your emergency fund, probably. Total received interest would be (assuming no compounding) $3750. If you were able to compound it at each year end, you should end up with $4144.22 total interest received.

If it's play money for investment, a 5% yielding stock (T or SO maybe?) with 2% dividend growth rate should return around $3981.09 in dividends without compounding but then who knows what the final value Mr. Market would place on it.

So yeah, it sounds like a fair deal.

How's that for a definitive answer?

[Kerim]

So here's what's really on offer:

We are a member of the local food cooperative. They are seeking to refinance some debt, and would rather raise from members than from the banks.

They will accept loans from $1000, to $100,000.
You select the term of the loan -- from no less than 4 to no more than 7 years.

And you select the interest rate that you'll receive:
-- On loans less than $15,000, you can select a rate of zero up to 3 percent.
-- On loans of $15,000 or above, you can select a rate of zero up to 5 percent.
(I think the idea here is that some portion of the loans will be made at very low rates out of the goodness of the hearts of the members.)

The loans are unsecured and subordinate, but I don't think there is any serious repayment risk. The place has been around a while and the financials are good.

There aren't many "safe" 5 percent options out there, and we do have some cash just sitting in a savings account that might be worth tying up for five years for a pretty sure 5 percent.

Just thinking....

[Dividend Watcher]

Hmmmm, I'm in no position to tell you what to do with your money so I'm hesitant.

What do you think of the business? I don't mean the financials. You've presumably already looked at those. Is it worth your time to shop there? Bargains? Do others feel the same way? Is the customer mix varied? Is turnover good? Good location that's not at risk of turning into a bad location in 5 years?

The only red flag, to me, is they don't want to use the banks. Is there a reason? Other debt covenants?

Hate to be so cynical.

[Markrichard]

Looks pretty reasonable and safe to me though, I think one can consider the offer if one need to go that way.