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 stock investment in the cooperative.
Lower Your Borrowing Costs: The Dividend Effect
On January 26, 2024, the Board of Directors of the FHLBank Chicago declared a dividend of 8.75% (annualized) for Class B1 activity stock and 5.125% (annualized) for Class B2 membership stock. FHLBank Chicago pays a higher dividend per share on your activity stock compared to membership stock to recognize your support of the cooperative through the use of Bank products. The higher dividend received on Class B1 activity stock has the effect of lowering your borrowing costs.
See the example below, which demonstrates how the dividend lowers your borrowing costs by 14.85 basis points (bps). Contact your Sales Director to find additional opportunities to lower your borrowing costs.
“All-In” Advance Rate Example*
Advance Transaction Details | |
| B1 Activity Stock Required $10,000,000 advance borrowed X 4.50% activity stock requirement | $450,000 |
| Class B1 Activity Stock Dividend Rate
Reflective of a projected dividend rate of 8.75% for Q4 2023 payable in Q1 2024. | 8.75% |
| One Year Advance Rate As of January 26, 2024 | 4.84% |
|
Dividend Cost Reduction | |
| Interest Cost on Advance
$10,000,000 advance X Advance Rate X Actual/360 | $490,722 |
| B1 Activity Stock Dividend Paid B1 Activity Stock Required X Class B1 Activity Stock Dividend Rate X Actual/Actual | $39,375 |
| Opportunity Cost of Funding Capital Purchase**
B1 Activity Stock Required X Opportunity Cost X Actual/360 | $24,318 |
| Net Interest Cost | $475,665 |
| “All-In” Advance Rate | 4.69% |
Interest Cost Reduction | 0.15% |