Interest Rate

An interest rate is rent on capital, expressed as a percentage per year. Borrow at 7% and you pay the rent; deposit at 4% and you collect it — while the bank re-lends your deposit at a higher rate. That gap is the spread, and the spread is the entire banking business model: pay savers a little, charge borrowers more, profit on the volume flowing between.

Households systematically underestimate their exposure to the paying side. Between mortgages, car loans, credit cards, and student debt, a typical American family routes 25–35% of lifetime income through interest payments — money that leaves and never returns. A $400,000 mortgage at 7% costs roughly $558,000 in interest over 30 years; a string of financed cars quietly adds six figures more. The headline rate feels small; the volume over time is enormous.

Two mechanics deserve deeper understanding than they usually get. Compound Interest — interest earning interest — is the force on both sides of the ledger: it's why unpaid credit card balances metastasize and why dividends buying Paid-Up Additions (PUA) inside a policy snowball over decades. And amortization front-loading: early mortgage payments are mostly interest, so the effective cost of capital in the years you actually hold the loan runs far above the sticker rate.

Infinite Banking reframes the whole question. Instead of asking "what rate am I paying?", it asks "who collects the interest?" A Policy Loan at 5–6% against Cash Value still compounding at 4–5%+ has a net cost near zero — and the financing function you were going to pay for anyway now happens inside an asset you own. The volume of interest flowing through your life doesn't shrink; its destination changes. That destination shift, multiplied across decades, is the quiet arithmetic behind Volume-Based Banking.