Are you looking for a medium-term savings vehicle?
The bond market has historically been the place for high yields and low volatility, but rates in the market are anemic. In fact, in many cases borrowers are better off putting their money in a high-yield savings account than in the bond market.
But thanks to innovations in the bond market, investors may not have to choose between a bond fund or a savings account. Investors with medium-term goals may find better bond investment options with more stable returns through a platform called CNote.
We’ll explain what CNote is, and whether or not you should consider investing in it.
- Invest in loans issued by community development financial institutions
- Get a 2.75% yield on your notes
- No investment fees or minimum balances
What Is CNote?
CNote is a company that allows consumers (in other words, people like you) to invest in loans issued by community development financial institutions (CDFIs). CDFIs are lenders that issue business or development loans to women and minority business owners, not-for-profit companies, and in some cases, local governments.
CNote doesn’t issue these loans themselves. Instead, they partner with CDFIs to issue loans to small business owners who may not otherwise have access to credit. One of CNote’s biggest marketing points is that it doesn’t invest in consumer debt or trap people in high-interest loans. When you invest in CNote, you’re investing in local business.
What Are the Terms of Investing Through CNote?
Accounts at CNote don’t have any investment fees, and they don’t require any minimum balance. There are no balance maximums at CNote.
Currently, accounts at CNote have a 2.75% yield. However, these accounts are not FDIC-insured, and the yield could change.
Investors can only access the money in their accounts once per quarter. You need to request access to your money at least one month in advance of withdrawing money.
What Type of Returns Does CNote Offer?
Right now as of January 11, 2019, accounts at CNote earn a 2.75% APY. This return could move up or down depending on market performance and interest rates.
Although CNote advertises a 2.75% yield on accounts, it’s important to note that accounts at CNote are not deposit accounts. That means, you could technically lose money by investing in CNote.
However, as an outsider, the returns that CNote offers appear to be somewhat stable. This is because CNote has implemented several forms of protection for borrowers.
These include a general recourse obligation which means that CDFIs have to pay back CNote even if borrowers default. Second, all the CDFIs have insurance from either state or Federal programs which means they are unlikely to suffer massive losses. Finally, CNote maintains its own loss reserve fund.
Again, CNote offers an investment, not a savings account. However, thanks to the layered protections, it seems like investors are likely to earn the advertised 2.75% yield.
Does CNote Contain Any Concerning Fine Print?
Since CNote is an investment platform, not a savings account, it carries risk. If you simply want safe returns, you could consider a CD or a high-yield savings account. Both of these would come with FDIC insurance, meaning you cannot lose money in them.
Aside from the investment risk, investments in CNote aren’t very liquid. You can request a “return of assets” once per quarter. You need to give a full month of notice to liquidate your account. You are limited to liquidating $20,000 per quarter or 10% of your total investments (whichever is higher).
Final Take on CNote
CNote’s 2.75% yield is a compelling investment for anyone with a three- to five-year savings horizon. It’s not a guaranteed return, but CNote looks like it will be a low-volatility investment. When you combine the return with the positive social impact, CNote looks like an even better opportunity.
People who need more liquidity than CNote offers should stay away, and people with longer investment horizons should consider a more aggressive option. However, for investors with a few years to accumulate wealth, CNote could be the right option.
But with rising interest rates, investors are close to getting 2.75% on money market accounts that provide liquidity with no risk. There may be better options out there to consider.
Commission and Fees - 100
Customer Service - 80
Ease of Use - 80
Investment Options - 20
Specialty Services - 20
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.