The Federal Reserve has started to lower interest rates. In the last couple of months, they dropped the rate by 0.75%. That directly impacts how much interest banks can pay you in interest. For a couple of years, I’ve been making around 5% in my Ally Savings account. Now, it’s paying around 4%. Experts predict that will continue to drop over the next year.
What if you could make 7% instead? You’d take that, right? The stock market typically can give you that kind of return (or even a little more) “on average.” Those last two words are critical, as we know that it can drop 20% like a couple of years ago and jump 25% like this year. Of course, you can also invest in bonds, which typically return around 6% with less volatility than stocks.
If you are looking for guaranteed income though, you are looking at 4-5% depending on the bank and if you go with savings or CDs. With CDs, you typically lock up your money for a while. The average 1-year CD is around 4% and people are buying them to lock-in those 4% returns as savings rates drop.
When I was at FinCon in October, I talked with a company that is promising to pay 7% interest until at least 2026. That caught my attention. So I went up and boldly blurted out, “So what’s the catch?!?!” (Okay, I might have been more diplomatic, but it’s more to imagine it went down like that.)
The catch appears to be in the “guarantee.” I’m using that in quotes because it isn’t guaranteed. In fact, I just had to review the company’s website, and I don’t see any guarantee. They are only claiming to pay a fixed 7% rate until Jan 1, 2026.
This is where it gets a little boring, but in this case, boring is good. The company is Worthy Bonds. Yes, it’s those bonds that I mentioned above. However, unless bonds you may purchase in a brokerage, the underlying value would not change. You simply make a 7% interest just like a savings or a CD.
How is Worthy able to do this and make money?
The guy at the booth said that they are able to lend it out to real estate investors at a higher rate. The Worthy website says they lend it out across a variety of industries. Around 10 to 15 years ago, Lending Club used to do something like this: consolidating peer-to-peer lending. Presumably, Worthy can lend out the money at 8% (or whatever is profitable for them) on average when accounting for the risk of defaults.
What is the risk with Worthy Bonds
I’m going to give it to you straight from the website:
“Investment risk in Worthy bonds is mitigated by the fact that the bond entities do primarily secured lending and lending across industries, different geographies, and different types of loans. That said, of course, ultimately Worthy bonds are an investment product and, as with any investment, are subject to principal loss, so we ask that our customers only invest what they’re comfortable risking.”
Can you withdraw the money? What is the liquidity like?
I was concerned that I may be trading liquidity for that high interest rate. That’s the trade-off with CDs. The man at the booth claimed that people could get their money out at any time. I think I asked what would happen if everyone wanted their money at once, like in a banking crash situation. Unfortunately, I don’t remember the answer to that one. I think some of the big accounts may have some limits on how quickly they can get back their money.
My investment with Worthy Bonds
Worthy gave me a promo code at the event for $10 of bonds. When I got home, I signed up and connected my bank in a few minutes. I started with an initial transfer of $100 and added a $20 recurring deposit each week. As they suggested above, I’m only investing money that I’m comfortable with risking. It takes a few days for the money to get on the platform and invested, but it’s very simple and easy. I’ve already cashed in on a cool $0.27 in interest. (I know you are so jealous right now!)
Some might ask why I’d invest with Worthy. The interest rate for the small amount of money that I plan to invest isn’t exactly going to move the needle on my savings. What’s more valuable to me is the automatic withdrawal. I love setting it and forgetting about it. Once a month, I check in with my monthly update, and they’ll be around an extra $100 saved. In a year or so, maybe I’ll use the money to upgrade a television. I always thank myself later for having money squirreled away like this.
I also checked to see if I could withdraw the money and it seem that I can withdraw it all, even the 27 cents. I didn’t actually execute the withdrawal because I want to keep investing with Worthy.
If you are going to invest a lot of money with Worthy, it might be best to read the FAQs in detail to see how the bonds are handled. For my small amount of money, I’m willing to take the risk.
If Worthy Bonds sounds like a fit for you, they’ll give you a free $10 when you sign up with this link. For full disclosure, I’ll also get $10.
