Have you had enough of banks that charge high fees and pay pathetically low-interest rates? If so, you may want to add some Worthy Bonds to your fixed-income portfolio. They’re not FDIC-insured like bank investments, but they pay interest rates nearly 10 times higher than the best-paying banks. All bond investments are secured, and you can access your money at any time.
What Is Worthy Bonds?
Based in Boca Raton, Fla., Worthy Bonds has already paid $1.2 million in interest on $150 million in bonds sold to 90,000 bondholders. On the surface, Worthy Bonds looks like a high-interest bond fund, but it’s actually much more than that:
Worthy Bonds Invests in American Businesses
The money you invest with Worthy Bonds is invested in American businesses. That is, the proceeds provide asset-backed loans to small businesses. In that way, you’re not only investing for a higher return but are also making a real contribution to the grassroots economy.
Further Reading: Small Business Checking Account
Fixed Return Rate
Now, about that high interest. When you invest with Worthy Bonds, you’ll earn a return that’s fixed at 5%. And you can get started with as little as $10.
Small Businesses Crowdfunding Platform
Worthy Bonds isn’t a bond fund, but more like a crowdfunding platform for small businesses looking for financing. It provides that financing using SEC-qualified bonds, which are private, corporate bonds that don’t trade on public markets. The company works by the “Main Street instead of Wall Street” motto.
Worthy Bonds Features
|Accounts Offered||Individual, businesses, non-profits, trusts and IRAs|
|Investments Offered||Mostly private bonds to small businesses, with a small amount in other investments for diversification|
|Maximum Investment||$50,000 for accredited investors; 10% of annual income for non-accredited investors|
|Investor Accreditation||Both accredited and non-accredited investors|
|Access||Online, mobile apps|
|Customer Service||Phone, email and live chat|
|Account Protection||Bonds are not FDIC insured but are secured by 2/3 of the borrower’s assets|
How Worthy Bonds Works
- When you invest with Worthy Bonds, you can invest in private bonds with a term of 36 months each. The bonds are SEC-qualified obligations of Worthy Peer Capital, Inc. Bonds are purchased in increments of $10, with a maximum investment of $50,000 (5,000 bonds).
- Under SEC regulations, the company can issue no more than $50 million in securities per year. That means once the company has sold $50 million in bonds in any calendar year, bonds will no longer be issued for that year.
- The current interest rate is 5%, which is not determined by any specific market factors. For instance, Worthy Bonds doesn’t adjust interest rates based on actions taken by the Federal Reserve, changes in the prime rate, or fluctuations in other interest rate benchmarks. The current rate — which the company indicates it has no intention of changing — is based on rates charged to borrowers for loans that secure the bonds.
- Interest is computed daily, though it will only be credited once it reaches a full $0.01. And if you’re wondering how Worthy Bonds makes money paying 5% interest to investors, they do so by charging a higher interest rate to business borrowers.
- Speaking of which, Worthy Bonds are not FDIC insured the way bank investments are. However, each bond is secured by assets owned by the borrowing business. The company limits loans to about two-thirds of a business’s inventory or commercial receivables. It lends less money than a business pledges in assets as security for the loan.
- For additional security, a portion of your investment is directed into real estate, U.S. Treasury securities, and certificates of deposit. This is done to create greater diversification beyond small business loans. The company discloses that these other assets may comprise as much as 40% of each bond’s value.
- At the end of 36 months, you can choose to either renew your bonds, cash them out, or even do a mix of both. You can also withdraw your money from the bonds at any time, penalty-free.
Worthy Bonds Specifics
Funding Your Account
When you sign up to invest, you’ll need to connect a bank account for funding purposes. You can fund your account with a one-time deposit, recurring deposits, or through purchase roundups.
The roundup method used by Worthy Bonds is different from those used by savings apps like Acorns. Instead of connecting the roundups to a credit or debit card, the service monitors transactions with a bank account or credit card of your choice (which does not need to be your linked bank account) and uses existing funds to buy bonds.
For example, they’ll monitor debit and credit card purchases within your designated account, and round each up to the nearest dollar. Once total roundups reach $10, they’ll be transferred to purchase bonds.
Transfers between your connected bank account and Worthy Bonds are handled by Dwolla, a payments platform that securely connects your bank or credit union to enable fast transfers.
There are no fees to invest in Worthy Bonds. That means no transaction fees on purchase or sale, and no monthly or annual advisory fees. Just as important, there are no transfer fees, reinvestment fees, or early withdrawal penalties if you liquidate your bonds before the 36-month term is up.
Worthy Bonds is available on Google Play for Android devices and on the App Store for iPhone and iPod touch devices.
If you refer someone to Worthy Bonds, and that person signs up for an account using your personal referral invitation link, both of you will receive a $10 bond. The new referral must be a first-time Worthy Bonds investor and have an active account open for at least 90 days before the referral bonds will be paid. You’re limited to 50 bonds ($500) per calendar year.
Who Can Invest With Worthy Bonds?
Virtually anyone can invest in Worthy Bonds, but there are limits to how much you can invest. That’s determined by your status as either an accredited investor or a non-accredited investor.
- As a non-accredited investor, you’re limited to investing no more than 10% of either your annual income or your net worth. For example, if your annual income is $50,000, you can purchase no more than $5,000 in bonds.
- No such limits apply if you are an accredited investor. However, the company does limit the total amount of any investor’s position to no more than $50,000.
- Worthy Bonds does not have a formal accreditation process. As such, there’s no approval process necessary. Instead, they rely on investors making that determination.
- This service is available only to U.S. citizens and permanent residents who have a valid U.S. bank account.
Worthy Bonds Pros and Cons
- High-interest rate returns: The 5% return is well above what even high-interest banks pay.
- Low initial investment: You can begin investing with as little as $10.
- High liquidity: You can cash out your investment at any time and with no penalties.
- No fees: That means your interest rate return is pure-play—it won’t be reduced by fees.
- Increase your investment with roundups: This is a truly passive way to save money since you’ll increase your investment with each purchase you make.
- Bonds are secured: Each is backed by assets owned by the borrowing business, with assets exceeding the value of the bonds they secure.
- No FDIC coverage: Worthy Bonds aren’t insured the way bank investments are.
- Investments are limited for non-accredited investors: You can invest no more than 10% of either your annual income or your net worth.
- Bonds are not risk-free: You’ll be investing in loans made to small businesses, which have the potential to default.
- Your investment is capped: The maximum investment is $50,000 and will be even lower for non-accredited investors.
- Not available to non-U.S. citizens or residents: Though there are plans to open investments to residents of the European Union.
Bottom Line: Are Worthy Bonds Worth It?
Nearly everyone has money in savings, but those accounts haven’t been paying much interest in recent years. Others have money invested in bonds that pay higher interest than banks, but nowhere near 5%.
That’s why you may want to add this service to your fixed-income portfolio. A small allocation can increase the overall yield on your portfolio, especially if you have bank investments like savings accounts and certificates of deposit.
What’s more, Worthy Bonds aren’t tied to the financial markets. They won’t decline in value when the stock market falls or lower their interest rate when bond rates fall or the Federal Reserve makes a big announcement.
Best of all, you can get started with as little as $10 and cash out at any time. With no fees of any kind, you’ll earn the full 5% on your Worthy Bonds.
You certainly don’t want to put all your liquid assets into these bonds, since there is a risk. But adding just a small sliver to a portfolio of bank investments can easily improve your returns.