Worthy Review: How to earn up to 5% on your money

Are you looking to invest some money without going through the ups and downs of the stock market but with a higher interest rate than that offered by most savings accounts? Enter Worthy Bonds.

Worthy is a financial services company that allows investors to purchase bonds that pay 5% annual interest with as little as $10.  As an alternative finance business, Worthy helps investors earn 5% while still being fairly safe. Worthy also benefits borrowers by offering more competitive rates on their loans.

Worthy Bonds Review Summary

• Worthy offers bonds that pay 5% interest with potentially less risk and volatility than the stock market. Money invested through Worthy funds loans to small businesses.
• Worthy comes with a free app that allows you to link a debit or credit card.
• The bonds have a 3-year term, but you can withdraw your money at any time.
• Although Worthy has a reserve fund to cover potential loan defaults, Worthy Bonds are not FDIC insured. As with all investments that are not FDIC insured, only invest money you could afford to lose.

Social Impact Investing

Worthy lets you lend money to American entrepreneurs running growing businesses. They refer to these loans as “social impact” investments because they help community businesses grow. This is in contrast to peer-to-peer (P2P) lending platforms that offer unsecured loans for various purposes, such as debt consolidation, home improvement, etc. In order to benefit from Worthy bond proceeds, these business borrowers have to be vetted and offer collateral to secure the loan.

The bonds come in $10 increments to make it easy for anyone to participate. You can either buy the bonds directly via the Worthy website or you will soon be able to connect your debit or credit card to their smartphone app to have all of your purchases automatically rounded up to the next dollar. Once the amount adds up to $10, the app will automatically purchase a bond which will earn 5%, according to Worthy. This is a similar concept to that of micro-investment apps like Acorns, which allow you to invest your “spare change”. The idea is to make saving money a painless process.

Liquidity, Fees, and Risk

The bonds have a 36-month term but, if needed, you can take your money out before the term expires without charge. In order to open a Worthy account, you must be a US citizen, 18 years or older. The account doesn’t charge any fees. Worthy’s business model is pretty simple: they invest the bond proceeds at a higher rate than they pay out and then they use that spread to operate.

Remember that no investment is 100% safe. Money invested in Worthy bonds is not FDIC insured, so it is potentially at risk. Worthy holds a reserve fund with an unspecified amount of money to cover potential defaults. That should help reduce the overall risk, although if the reserve fund was to run out, investors could lose their money. Our experience with P2P loans has shown that when overall spending decreases, such as during a recession, more businesses and individuals default on their loans. However, P2P companies typically let investors spread their money across many loans in order to diversify their holdings (i.e. not putting all their eggs in one basket). At this time, we don’t know if this will be an option with Worthy bonds.

Conclusion

We welcome this latest addition to alternative lending. Worthy is part of a new breed of financial services companies that offer higher interest rates to investors looking for alternative options. While we do not recommend using Worthy Bonds for the bulk of your retirement savings (in part because you would be missing out on tax advantages of traditional investment accounts such as 401(k)s, Roth IRAs, etc.), Worthy Bonds might be an interesting option for individuals willing to try a new investment. By clicking this link, you can open an account with as little as $10.

If you have any experience investing in Worthy bonds, feel free to share your thoughts in the comments section below!

Disclosure: This article is provided for informational purposes only and is not intended to form a primary basis for any investment decision that you may make. Investing involves risk, including the possible loss of principal. Past performance does not guarantee future results. Always consult with an investment advisor, tax advisor, and/or lawyer prior to making any financial planning, investment, tax, or estate decisions.

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Further Reading

Worthy Peer Capital Receives SEC Qualification for 5% Money Market Alternative
Company Overview of Worthy Financial Inc.