Why a family fund
When a family member borrows from a lender, the interest leaves the family. When a family member keeps money in an ordinary account, most of what that money earns goes to the institution holding it. A family fund closes both gaps at once: the same people put money in and borrow it, so the difference that an outside lender would keep stays with the family.
It is a private lending fund for one family: a company the members own, with its own checking account, written rules, and every loan on paper. No outside money and no promises about returns.
Two rates, one family
Every rate hangs off one public number: the IRS Applicable Federal Rate, the minimum the tax code requires on loans between relatives. Savers earn that rate plus one point, reset each quarter. Borrowers pay the saver rate plus a small spread fixed for the life of the loan. The spread builds a loss reserve and pays the fund's costs; the rest belongs to the members.
| Rate, October 13, 2026 | Yearly |
|---|---|
| IRS mid-term AFR (Rev. Rul. 2026-19) | 4.61% |
| Savers earn (AFR + 1.00) | 5.61% |
| Secured loans: car, home, school (saver rate + 1.50) | 7.11% |
| Unsecured loans (saver rate + 2.50) | 8.11% |
| Best ongoing high-yield account (Yahoo Finance) | 4.25% |
| Average used-car loan (Experian, Q2 2026) | 11.19% |
| Average personal loan (Bankrate) | 12.54% |
As a saver
$20,000 left in the fund for five years at 5.61% grows to about $26,280. The same money in the best ongoing high-yield account at 4.25% grows to about $24,630. The fund pays about $1,650 more, and the money is working for a sibling instead of an institution.
In the fund, 5 years
$26,280
5.61%, interest left in
High-yield account, 5 years
$24,630
4.25%
As a borrower
The gain is largest for a young adult whose credit history is short, because that is where commercial rates are highest. Worked examples at October 13, 2026 rates:
$25,000 used car, 5 years, average credit
From the fund: 7.11%, $496 a month
From a lender: 11.19%, $546 a month
Interest kept in the family: $2,980
$25,000 used car, 5 years, excellent credit
From the fund: 7.11%, $496 a month
From a lender: 7.59%, $502 a month
Interest kept in the family: $340
$15,000 unsecured, 3 years
From the fund: 8.11%, $471 a month
From a lender: 12.54%, $502 a month
Interest kept in the family: $1,130
Beyond the rate: no origination fee, no credit pull, no prepayment penalty, an answer within 14 days from people who know you, and a payment history the family can vouch for.
As a family
Picture a fund of $200,000 with $160,000 lent to members at an average of 7.3% and $40,000 held in Treasury bills at about 4%. It earns about $13,300 a year. Savers receive about $11,200 of that; the reserve and the fund's costs take the rest. Had the same borrowers gone to commercial lenders and the same savers to ordinary accounts, the family would have paid roughly $2,000 to $5,000 a year to outsiders, depending on everyone's credit. Over twenty years, compounding, that is a six-figure difference.
What the numbers leave out
- Young adults learn to borrow on paper, with a schedule, and to be the lender too.
- A committee with written rules takes the parent-and-child dynamic out of money. The answer comes from the rules, not from Dad.
- Money that would sit idle in one sibling's account funds another sibling's first house, and the first sibling is paid for it.
- The fund becomes a family institution with a history, which is the hardest part of any multi-generation plan to build.
What keeps it safe
- Cash on hand. 20% of capital is never lent, so a withdrawal is paid from cash, with 90 days' notice.
- A loss reserve. Part of every loan's spread builds a reserve to 5% of loans before anyone counts surplus.
- Limits that scale. No borrower owes more than 25% of the fund, and tighter limits apply while the fund is small.
- Rules, not favors. Every application passes the same tests; a committee votes, and anyone related to the loan sits out.
- Everything on paper. An operating agreement, a signed note for every loan, an append-only ledger, quarterly statements.
- Your own professionals. Your attorney reviews the documents for your state; your CPA gets a year-end packet.
Honest limits
- A member with excellent credit and a manufacturer's promotion (0% to 3.99% on a new car) will beat the fund's rate. The fund is a floor of fair credit for everyone, not always the cheapest money in the market, and the rules let a member take the better deal.
- The examples hold today's rate still. The AFR has ranged from under 1% to over 5% in the last fifteen years, so the real path will wander, for savers and borrowers alike.
- The fund grows the family's wealth by keeping the spread inside the family, not by earning outsized returns. It is a lending fund, not an investment fund.
Three levers that matter more than the rate
- Leave the interest in. A member who leaves interest in doubles their money in about 13 years at today's rate.
- Add monthly. $2,000 a month across a family, four members at $500, is the difference between roughly $0.6 million and $1.4 million at year 20.
- Keep the loans in the family. Capital in Treasury bills earns about 4%; capital lent to a member earns 7% to 8%. The fund does best when its loans are fully subscribed.
Rates and comparisons as of October 13, 2026. Sources: IRS Rev. Rul. 2026-19 (AFR); Yahoo Finance (high-yield accounts); Experian State of the Automotive Finance Market, Q2 2026 (used-car average); Bankrate (used-car excellent credit, personal loans). Payments are level monthly payments; growth figures compound yearly. Every family sets its own rates in setup; these are the defaults.