Savings advice

Of course it can, and you don't even need to do calculations to prove it. The key lies in the fact that the interest rate on the car loan is larger than that on the savings account.

Think of it as splitting your personality. One half of yourself (call it the left hand) borrows £5k for the car and repays the loan. This is the same in both scenarios.

Your other half (the right hand) invests £10k. In both scenarios it puts half the loot in the savings account, so we can forget about that and focus on the other £5k. In one scenario it invests the 2nd £5k in the same place as the 1st £5k, so it earns interest on it at savings account rates. In the second scenario it invests the loot by pretending to be a car loan shark. It lends the £5k to your left hand and charges rather more for it than the savings rate. What's more, the interest you receive is not simply pocketed and spent, but is itself re-invested at savings rates, growing even more.

Another way to look at it is that you split yourself in three. The middleman in you borrows £5k from your right hand and lends it to the left hand. The right hand was difficult to convince because it would have meant losing savings interest on 5k but the middleman told it not to worry, he would reimburse the lost interest. Now the right and left hands are in the same position in both scenarios. But the middleman collects more interest from the left half than he pays the right half.

He's not even using any of his own money, he's clearly onto a winner!

What if he splits himself into 4?

He'd have to sell the car to pay the psychiatry bills.