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 July 29, 2021, the Federal Home Loan Bank of Chicago (FHLBank Chicago) declared a dividend on B1 activity stock at an annualized rate of 5.00% and on B2 membership stock at an annualized rate of 2.00%. 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 21 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
Borrow a $5,000,000 advance for one year at 4.5% activity stock requirement 

B1 Activity Stock Required
$5,000,000 advance borrowed x 4.5% activity stock requirement
$225,000
Recent B1 Activity Stock Dividend Rate*

Reflective of a projected dividend rate of 5.0% for Q2 2021 payable in Q3 2021.

5.00% 
Advance Rate
As of July 28, 2021
 0.27%
 

Dividend Cost Reduction
How the FHLBank Chicago dividend lowers your borrowing costs

Interest Cost on Advance

$5,000,000 advance X Advance Rate X Actual/360

 $13,688
B1 Activity Stock Dividend Paid *
*Assumes the advance is fully supported by B1 Activity Stock.
 $11,250
Cost of Funding Capital Purchase

Assumes Primary Credit Rate of 0.25%

 $570
Net Interest Cost  $3,008
“All-In” Advance Rate  0.06%
Interest Cost Reduction

Advance Rate less “All-In” Advance Rate

 0.21%

Interest Cost Reduction
Advance Rate less “All-In” Advance Rate

0.21% 

*Sample transaction based on advance rate and standard activity stock requirement as of July 28, 2021. Projected dividends reflected for illustration purposes; future dividends remain at the discretion of the FHLBank Chicago Board of Directors.

 

 

Contact your Sales Director for more information.

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