Lower Your Borrowing Costs: The Dividend Effect
Did You Know?
- The FHLBank Chicago dividend reduces the “all-in” cost of borrowing an advance.
- The FHLBank Chicago dividend represents a return on a member’s investments.
Lower Your Borrowing Costs: The Dividend Effect
On October 28, 2022, the Federal Home Loan Bank of Chicago (FHLBank Chicago) declared a dividend on B1 activity stock at an annualized rate of 6.50% and on B2 membership stock at an annualized rate of 2.75%. The Bank pays a higher dividend per share on activity stock to reward members for using the Bank’s advances and, thereby, supporting the entire cooperative. The higher dividend received on Class B1 activity stock has the effect of lowering your borrowing costs.
See the example below, which lowers your borrowing costs by 19 basis points (bps). Contact your Sales Director to find opportunities to lower your borrowing costs.
“All-In” Advance Rate Based on 100% B1 Activity Stock Sample*
Advance Transaction Details | |
| B1 Activity Stock Required*** $5,000,000 advance borrowed x 4.93% activity stock requirement | $225,000 |
| Recent B1 Activity Stock Dividend Rate** Reflective of a projected dividend rate of 6.50% for Q4 2022 payable in Q1 2023. | 6.50% |
| Advance Rate As of October 28, 2022 | 2.19% |
|
Dividend Cost Reduction | |
| Interest Cost on Advance^ $5,000,000 advance X Advance Rate X Actual/360 | $249,924 |
| B1 Activity Stock Dividend Paid^^ *Assumes the advance is fully supported by B1 Activity Stock. | $14,625 |
| Cost of Funding Capital Purchase^^^ Assumes Primary Credit Rate of 0.25% | $4,985 |
| Net Interest Cost | $240,283 |
| “All-In” Advance Rate | 4.74% |
| Interest Cost Reductio Advance Rate less “All-In” Advance Rate | 0.19% |
Interest Cost Reduction | 0.19% |