Interest Rates: What Does It Mean for Infinite Banking?

Are you concerned about rising interest rates? How will they affect your Infinite Banking policies? What about inflation and infinite banking? What do interest rates mean for infinite banking? 

Today, we’ll be discussing the infinite banking concept and how it relates to interest rates. We’ll also explore the implications of this concept for infinite banking customers and whole life insurance customers. We want you to have a better understanding of what interest rates mean for infinite banking. This includes the implications for you and your financial situation.

What often gets lost in conversations about infinite banking interest rates is how those rates actually function inside a properly designed system. Interest rates do matter, just not in the headline-driven way most people assume. Rather than trying to predict where rates are headed next, this discussion focuses on how policy structure, mechanics, and long-term design influence outcomes across different rate environments.

So, if you want to know what to expect … tune in now!

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The Basic Mechanics

When you work with a non-direct recognition company, there’s usually only one borrowing rate. The rate is based on the Moody Bond Index. At the time we recorded our podcast, most non-direct recognition companies were sitting at about 5 percent for their borrowing rate. 

Direct recognition companies generally have a variable borrowing rate. At the time of recording, it ranged from 3.25 percent to 5 percent. (Note: At the end of the day, the long-term cash value outcomes are incredibly similar, whether you choose direct recognition or non-direct recognition. Don’t get too hung up on the distinction.)

The Moody Bond Index is a conglomerate of bonds that indicates the general trend of bonds. 

[11:37] “So what the insurance companies do is they base their borrowing on that because they want to be competitive.”

Life insurance companies don’t mind lending money to policy owners because they actually make a pretty good return. If they can make 5 percent on fully collateralized cash with their policyholders, they don’t have to risk that money in the market, even if the market in question is fairly safe. They raise rates as appropriate in order to remain competitive with the bond market.

While it can be frustrating to see interest rates being raised, there are still benefits for you, the policyholder. After all, mutual companies must share profits with all owners—AKA policyholders. 

By keeping borrowing rates competitive with bond rates, they can benefit policyholders in two ways—by providing access to cash AND by making a profit. That way, companies don’t lend at the expense of profits in the bond market. When the company pays dividends, you and all other policyholders benefit. 

At a high level, it’s important to understand that infinite banking interest rates operate inside an internal system, not as a direct substitute for outside lending or market returns. When a policy loan is taken, interest is charged on the loan balance, while dividends continue to be credited based on the policy’s underlying performance. 

These two components work independently within the policy, which is why comparing whole life insurance policy loan interest rates directly to external market rates often misses how the system actually functions. 

Interest Rates Don’t Matter

Nelson Nash has said time and time again, “Interest rates don’t matter.” So what does that mean, exactly? 

[18:08] “If you have more and more money in the form of premiums go into the insurance company, those insurance companies are going to deploy that to make money for the policyholders. And that money is going to get paid back in the form of dividends. Seventy-five percent of that is in the form of bonds. So as interest rates go up—bonds are interest-rate sensitive—they will then pay out greater dividends. And throughout the history of these mutual companies, the dividend rate has always stayed above the lending rate.”

The life insurance companies are not interested in making less money than what they’re lending out, because they have to consider their policyholders. Life insurance companies are great at making a profit, and it’s to the benefit of everyone. 

[19:10] “It’s really important to recognize the rising interest rate does not only affect the borrowing component of infinite banking. It also impacts your growth rate on the dividend side.” 

Translation: don’t sweat it too much when loan rates increase, because that means everything else is increasing too. And with dividends, that means good things for you and all other policyholders. 

The reason this phrase often causes confusion is that it’s usually heard without context. Interest rates don’t “not matter” in isolation; they matter within a closed system where both the cost of borrowing and the rate of dividend crediting move together. 

Focusing only on the headline loan rate can obscure the net cost of using capital inside a policy, which is shaped by how interest is charged, how dividends are credited, and how the system performs over time. 

Interest Rates and Policy Design

If you want to see for yourself how the interest rates and dividend rates are affecting your life insurance policy, it’s all right in your annual statement. In that statement, you’ll find the total dividend you received. You can also see how much of that dividend the insurance company assigned to the base part of your policy, and how much they assigned to the paid-up portion of your policy. 

To explain it as a general concept, though, imagine you have a premium of $100k, and you allocate 40 percent of that premium to the base policy. The other 60 percent of that premium is all PUAs (paid-up additions). If you’re around 40 years old, that $40,000 base premium is going to buy about $800,000 in death benefit. The remaining $60k of PUA is going to get you about $120k of death benefit. 

Then, if you look at the dividend on this policy, most of the dividend is going to be applied to the base premium. About 90 percent of the total gross dividend is on the base premium.  We want to balance high cash value and long-term growth.

This is where policy design plays a critical role in how infinite banking interest rates actually impact long-term outcomes. Capitalization, guarantees, and a properly structured base premium help absorb changes in the interest rate environment over time, rather than amplifying them. 

When policies are designed with a long-term horizon in mind, short-term rate movements become far less disruptive, which is why focusing too heavily on today’s rates can undermine the stability Infinite Banking is built to provide.

Should You Have a High-Base Policy?

A high-base policy simply means a greater portion of the premium is allocated to the base policy rather than being blended more heavily toward paid-up additions. Compared to small base designs, higher base premiums tend to provide more stability when interest rates fluctuate, because a larger share of dividends and guarantees is anchored to the base policy. 

This can be especially helpful for those who plan to use policy loans consistently and want less sensitivity to changes in infinite banking interest rates over time.

[35:28] “This means that the higher the base policy, as interest rates change and dividends increase… it would be logical to say that the dividends will then grow even greater.”

Not only do high-base policies perform well during interest rate environments like this, but they also have more guarantees and protection as pure insurance. In other words, with a higher percentage of base, you have greater death benefit protections.

What’s most important is that you consider your long-term financial goals and desires, not just short-term goals. What works for one family system might not be what you want, or what works for you. Don’t let the current market dictate the direction you choose to go. (And remember that you can have a portfolio of policies that contribute to different goals.)

Putting Interest Rates Back in Their Proper Place

Interest rates are a variable within the Infinite Banking system — not the strategy itself. While rates will rise and fall over time, the core value of Infinite Banking comes from control, liquidity, and disciplined long-term behavior. 

A well-designed policy allows you to access capital when needed, continue compounding within the system, and make financial decisions based on opportunity rather than market conditions.

When viewed this way, interest rate changes become something the system adapts to, not something that dictates action. This kind of system thinking shifts the focus away from short-term rate movements and back toward intentional policy design and consistent usage over time.

Focus on Design, Not Headlines

Interest rates will always change, and no one can control where they move next. What remains within your control is how your policy is designed and how you use it over time. When Infinite Banking is approached as a system – rather than a reaction to headlines – whole life insurance policy loan interest rates become one variable among many, not the deciding factor.

A focus on structure, liquidity, and consistent long-term behavior allows the system to function as intended across different interest rate environments, without the need to constantly adjust based on external noise.

Book A Strategy Call

If you’re still weighing up what infinite banking is and how it fits into your overall plan, our team can help you review the options in a clear, practical way. 

Start the conversation today.

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