Worthy is a financial services company that allows investors to purchase bonds that pay 5% annual interest. As an alternative finance business, Worthy helps people both save and invest. One the borrowing side, they partner with peer lending platforms to help borrowers obtain loans without going through a traditional bank. The advantage of these loans is that they typically offer more competitive rates for borrowers. At the same time, they offer a higher rate of return for investors backing those loans with potentially less risk and volatility than the stock market.
Although the Worthy bonds are not yet available to the general public, you can add your name to their waiting list at joinworthy.com/reserve to reserve the $10 bonds (any amount up to $100 can be purchased). This article provides an overview of Worthy’s service, risk, and fees, based on information currently available. We will update this entry as we learn more and get some hands-on experience with their bonds.
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 P2P lending platforms (such as Prosper.com) 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.
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.
Given that we don’t have any hands-on experience with Worthy’s service, we can’t give it an objective rating yet. Having said that, we welcome this latest addition to alternative lending and we look forward to buying some bonds to see how they fare over time. We will be updating this article with new information as it becomes available. Meanwhile, if you have any experience investing in Worthy bonds, feel free to share your thoughts in the comments section!
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