HELOC vs. Savings: Should You Use Cash or Equity?

The Cost of Liquidity

When you have $50,000 in the bank and a $50,000 project to pay for, it feels painful to borrow money at 9% interest. Why pay the bank interest when you have the cash?

But financial planners often advise against draining your cash reserves. Here is why.

1. Opportunity Cost (The 5% Rule)

In 2026, high-yield savings accounts and money market funds are paying ~5%.
If you borrow at 9% and your cash earns 5%, the "net cost" of the loan is only 4%.

2. Liquidity is Safety

If you spend your $50,000 cash, it is gone. If you lose your job next month, you have no buffer.
If you use a HELOC, you keep your $50,000 cash in the bank. If you lose your job, you can use that cash to make the monthly payments for years. Cash is oxygen. Do not cut off your air supply.

3. The Investment Spread

If your money is invested in the S&P 500 earning an average of 10%, and the HELOC costs 9% (and is tax-deductible), the math is a wash. But keeping the money invested allows for compounding growth.

When to Pay Cash

• Small purchases: Don't open a loan for a $3,000 couch.
• Retirement approach: If you are retired and risk-averse, being debt-free provides peace of mind that math cannot quantify.