Have you ever wanted to invest in a small business (or group of businesses) but didn't know where to start? What if you could lend money to small businesses who needed it for a solid return? That's where Worthy comes in.
With Worthy, you're investing in a bond that pays a flat 5% interest. But what Worthy does is take your investment and loan it out to small businesses. So, you are basically lending your money to small businesses that need it, in exchange for a decent return.
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- Invest your spare change in bonds that earn 5% interest
- It's free, and you can cash out any time
- Your funds go to small businesses
Who Is Worthy?
The company behind Worthy is Worthy Financial Inc. It was founded in February 2016 and is based in Boca Raton, FL.
The CEO of Worthy is Sally Outlaw. She was previously CEO of peerbackers.com, holds a real estate broker's license, a Series 65 license, and is a Registered Investment Advisor.
In July 2017, Worthy raised $600,000 in seed capital to fund its initial operations, including registering its bonds with the SEC. In July 2018, Worthy launched on StartEngine, which lets people invest in Worthy. They are a Title III, Regulation Crowdfunding campaign.
In its first six months of bond sales, Worthy generated $1,000,000 in revenue.
How Does It Work?
Worthy loans money to small businesses from its bond sales. These businesses pay Worthy interest on the loans. Investors (you) buy bonds from Worthy at a 5% interest rate. While the bonds have a three-year maturity, they can be cashed out at any time.
To use Worthy, download the free iPhone or Android app and create an account. Then link your debit or credit card to your account. As you spend, the app will round up each purchase to the nearest dollar. This roundup is then invested in Worthy bonds. Interest begins accruing within a couple of days of your purchase.
As an example of how the round-up calculation works, if you buy a soft drink for $1.50, Worthy keeps track of the $0.50. A few days later, you go through the drive-thru at a fast food restaurant, paying $7.80. Worthy rounds up to the nearest whole dollar, which is a $0.20 difference. Worthy tracks the $0.20. Once you hit $25.00 in rounded-up spare change, Worthy will purchase a $25.00, 5% interest-earning bond.
You may be wondering how Worthy makes money if it doesn't charge any fees. While Worthy pays 5% interest to investors, it charges more than that on its loans to businesses. This spread is how Worthy makes money.
Worthy has a subsidiary called Worthy Peer Capital. You can find them at worthybonds.com. They are also based in Boca Raton, FL. Investors can buy Worthy bonds at worthybonds.com as well.
"Well I'm trying to help people improve their financial health but to do it outside of Wall Street," Outlaw told Authority Magazine in an interview.
Outlaw continued, "With a focus on making money work for everyone (not just the 1%), I used recently updated securities laws in an innovative way. I took what is called Regulation A+, which is part of the new JOBS ACT [sic] law, and engineered a proprietary financial product for the masses.
It's a 5% fixed interest bond — that's only $10.00 — so it allows people to micro-invest and more easily build a nest egg. The bonds are also totally liquid meaning they can be cashed in at any time with no fees or penalties, so they operate more like a savings account."
There is also a borrowing section on Worthy's website. This section is completely unrelated to its bond offering and sends users to the website of other lenders.
What Are the Fees?
Worthy is completely free. There are no fees.
Is It Safe?
Worthy doesn't store your sensitive information. They also use bank-grade encryption and SSL-based security.
Worthy bonds are not rated. Unrated bonds are not uncommon for small companies, mainly due to the high expense involved in paying for a bond rating. Does this mean Worthy bonds are high-risk? Worthy bonds are backed by two-thirds of a business's inventory — meaning, they are asset-backed bonds.
It isn't known what might happen if a business defaults on its loan. According to Worthy, they can sell inventory to cover the default. But if the business has no inventory to sell, that may not work too well. As for investors, there's no information about what happens to their principal in the event of a loan default.
It's unclear how Worthy will maintain a 5% interest rate for investors during adverse conditions such as a recession or multiple loan defaults.
Worthy bonds are not FDIC-insured (insured by the Federal Deposit Insurance Corporation). The FDIC is used to insure bank account deposits. Worthy is not a bank and its bonds carry no form of insurance.
Worthy offers investments, and like any investment, investments from Worthy present risks.
Currently, in the U.S., savings account interest rates range from below 1.00% to around 2.00%. Worthy bonds are paying 5%, which is more about 2.5% above the inflation rate. Sending your spare change into high-yielding bonds won't grow it into a retirement nest egg, but it is a better yield than putting it under a mattress.
Given that you can invest as little as $10.00, and it earns a solid 5% interest, Worthy bonds are interesting. However, there are definitely risks involved.
If you want to back small businesses, this can be a great way to do it. But you should limit your exposure to an amount of your portfolio that you are willing to lose if negative events happen in the economy.
Worthy Bonds Review
- Commission and Fees - 100
- Customer Service - 90
- Ease of Use - 90
- Investor Information - 80
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 here and here.
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.