We have all heard the term “Guaranteed Interest” but until just recently I never asked this very important question: what is guaranteed interest? The dictionary defines guaranteed as a noun; a promise or assurance, especially one in writing, that something is of specified quality, content, benefit or that it will perform satisfactorily. A guarantee is a promise or an assurance. So if someone guarantees you that they will pay you a fixed interest rate in writing what are they guaranteeing it with? If you put your money in a CD at the bank your interest is backed by a federal insurance policy called the FDIC. The interest and principal will be paid by the federal government if the bank cannot pay it. We sure are hearing a lot of talk lately about a “Default on the National Debt”. I don’t know if the FDIC has any connection with that. I’m not making a comment on the FDIC I’m trying to decide what “Guaranteed Interest “means. I think it means that if you do not receive the contracted amount of interest then the person or company that guaranteed it will forfeit something of equal value. If you don’t make your $1,200 a month house payment the mortgage company will take your house and sell it to recover what you owe them. So it boils down to what it is guaranteed by? Is it secured by someone’s word, by an insurance policy or by real collateral? I don’t know about you but my common sense tells me real collateral is the best.
How do you get a fixed interest rate in something as important as your IRA? The answer is to buy real estate notes. Real estate notes pay a fixed interest rate that varies with each note. Real estate notes are owner financed mortgages that the original owner now wants to sell at a discount. They are backed by real assets and pay monthly payments. You can roll your old 401ks and IRAs into a self-directed IRA and purchase these notes. Each note pays a fixed interest rate that is backed by collateral.
So what is guaranteed interest? It is interest that is backed by real collateral like real estate. How do you get it? Buy real estate notes that pay a fixed interest rate. How can you put them in your IRA? Set up a self-directed IRA and buy fixed rate real estate notes.