Does the measly interest rate you earn on your bank account make you feel a little cheated? You are not alone! The national average interest rate on savings is a measly 0.06% according to the FDIC. But here’s the good news: There’s an alternative that allows you to make 5% interest and help your community at the same time.
Here’s how it works: You buy 36-month Worthy bonds for just $10 each. Your money is loaned to small businesses through a peer-to-peer system, also known as P2P lending. Small-business owners using this system gain access to capital, and you earn 5% on your investment.
Not only that, but you can set up an app to make regular, automatic bond purchases, or funnel your spare change into this investment in small increments as you make purchases — which allows you to invest money that you will hardly miss. (We’ll explain how that works below.) What it means is that we ordinary mortals, with ordinary amounts of money, can get in on returns that are usually the domain of wealthier people.
“We created an alternative way for people to save that not only pays 5% interest but helps support growing businesses across the country,” says Sally Outlaw, founder and CEO of Worthy Financial. “Ultimately, I want to help as many people as possible have a more secure financial future.”
Worthy bonds are an investment for the masses, not just the wealthiest 1%, Outlaw says.
“It’s about time we have access to the types of institutional-quality investments that the wealthy have always had, so we too can see some real financial growth,” she says.
Think about it: If you invest $1,000 in Worthy bonds paying 5% interest, you’d have $1,050 after a year. If you put that money in a typical bank savings account paying the national average interest of 0.06%, you’d have only $1,000.60 at the end of the year.
How to get started
One easy way to invest is by using the Worthy Financial app available through Apple’s App Store or Google Play.
Link the app to your bank account or credit card — Worthy then will track each debit or credit card transaction you make and round up the total to the next whole dollar, keeping track of the resulting “spare change.”
Worthy’s example: If you purchase a bottle of water with your debit card for $1.39, Worthy tracks the 61 cents difference between the purchase and the next whole dollar. The next day when you fill up your gas tank for $24.20, again Worthy tracks the 80 cents difference from the next whole dollar. So far, Worthy has tracked $1.41. As you go about your spending, Worthy keeps tracking your “spare change” and shows it to you on the app’s dashboard. When the “spare change” adds up to $10, it triggers the purchase of a $10 bond, which earns 5% interest.
Despite the bond having a 36-month term, you can cash out at any time with no penalty.
You don’t have to wait for the spare change to add up to buy a bond, either.
You can buy as many bonds as you like at any time, Worthy says. You can even set up recurring purchases to put your bond investments on autopilot.
Besides using the app, you can also make transactions on your computer through the Worthy Bonds website.
Where your money goes
Worthy Peer Capital, a Worthy Financial company, invests all bond sale proceeds into fully secured, asset-backed, small-business loans made to creditworthy, mostly veteran-owned firms.
In $25 increments, Worthy invests in fractions of loans to qualified borrowers who use online financing marketplaces rather than banks.
The Worthy loans typically offer more competitive rates for borrowers while offering you, the investor, a higher rate of return.
That’s the kind of action usually reserved at a grand scale for investors trading on Wall Street, Outlaw says.
Corporate bonds traded on Wall Street are issued by companies to raise money for themselves. With Worthy, the smallest investors can benefit from strong returns usually reserved for institutions and the wealthy. Also, stock market volatility won’t impact your investment return.
While your money is at risk if borrowers don’t repay their loans, the bonds are backed by a reserve fund that holds money aside in the event of unexpected losses, Worthy says. This fund is designed to give you your full return.
Worthy reminds investors that it is not a bank and that investments in Worthy bonds are not bank deposits, nor are they insured by the FDIC. They have received regulatory approval from the Securities and Exchange Commission, Outlaw says.
“You should be comfortable with your understanding of the investment and its risks,” the Worthy website says.
Outlaw says she created the bonds so as many people as possible would have access to higher-yielding, community-based investments.
“I think everyone is worthy of economic security, and if we can help provide this, while offering both a financial and a social return, it’s a home run,” the Worthy CEO says.