Can a Line of Credit Be a Non-deposit Investment Product?

Non-deposit Investment Products

Non-deposit investment products generally are not offered directly by a bank but may be available in its lobby or advertised online or through the mail. Usually, the individuals marketing these products do not work for the bank or other financial institution; they are employed by insurance companies or brokers. The FDIC requires that sellers inform the public about risks involved with non-deposit investment products. This includes the financial institutions that may permit such sales on their premises, even if they do not actually market the products.

Warnings

The FDIC requires marketers of non-deposit investment products to warn customers that the product is not FDIC-insured, unlike deposit investments offered by banks such as checking, savings and money market accounts. It must be clear that the non-deposit investment products are not guaranteed by the bank. The marketer must inform customers, in writing, orally or in advertisements, that the non-deposit investment product has risks, including loss of principal.

Home Equity Lines of Credit

One of the most popular ways for homeowners to obtain credit is a Home Equity Line of Credit, or HELOC, loan. This revolving credit line uses the owner's residence as collateral. The Federal Reserve Board recommends that customers only consider these loans for major purchases or to pay large expenses, such as medical bills, tuition or home renovations, and not for everyday expenses. The lender approves a HELOC for a specific credit amount, generally based on a certain percentage of the appraised value of the dwelling minus what is owed on any mortgage.

Personal Credit Lines

Unlike a personal loan, personal credit lines offered by banks may be withdrawn and used as needed. Rates generally are lower than those for personal loans. Monthly payments depend on the credit line's outstanding balance. Unlike HELOC loans, personal lines of credit are suitable for uses such as credit card bill consolidation, as the personal line of credit rate is lower than the interest rate charged on credit cards.