Worthy Review: Invest Your Spare Change in Bonds

Have you ever wanted to invest in a small business (or group of businesses) or real estate but didn't know where to start? What if you could lend money to small businesses or real estate developers who needed it for a solid return? That's where Worthy comes in.

With Worthy, you're investing in a bond that pays a fixed 5% interest and that can be cashed in any time (which is unique in real estate where most investments are considered more illiquid). What Worthy does is take your investment and loans it out to growing real estate developers. So, you are basically lending your money to the real estate industry, in exchange for a decent return. Worthy previously did this with bonds to small business, but their current offering focuses on real estate development.

Curious? Learn more about Worthy in our review! Check out Worthy directly here >>

Who Is Worthy?

Worthy allows you to invest your spare change in bonds that pay 5% interest. You can find them at joinworthy.com.

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. They launched their bond sales via their own proprietary technology platform in early 2018.To date, Worthy has generated over 170 million in bonds sales. 

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How Does It Work?

Worthy sells their $10, 5% interest-earning bonds to the public and then Worthy aggregates that bond sale capital and loans the money to real estate developers for their short-term, real estate projects. These businesses pay Worthy interest on the loans and Worthy essentially shares part of this interest with you as a bondholder. The bonds are “demand” bonds which means they have no maturity date and can be held as long as you (the investor) wish.  

To use Worthy, download the free iPhone or Android app and create an account. Bonds can be bought in three ways - whenever you wish with the click of a button, via a scheduled recurring investment feature, or though their spare change round-up program. For the round-up program, link your debit or credit card to your account and 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 $10.00 in rounded-up spare change, a $10.00, 5% interest-earning bond will be added to your account.

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 and real estate developers. This spread is how Worthy makes money.

You can learn more about their current offering at worthypropertybonds.com. Note: while any U.S. resident, 18 years or older can invest, the bonds are not currently offered in Florida.

When asked about she started the company, the CEO responded, "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 liquid meaning they can be cashed in at any time with no fees or penalties, so it’s a convenient way to invest."

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? Potentially. They are more risky than other bond types.

Worthy’s newest offering, Worthy Property Bonds, are backed by the real estate they are lending against— meaning, they are asset-backed bonds. It isn't known what might happen if a business or developer defaults on its loan.

According to Worthy, they can sell business inventory or the real estate collateral to cover the default. But in the case of the business bonds, 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, but the bonds are not backed by only one loan, but by all the loans in the offering’s portfolio so that does spread the risk.

It's unclear how Worthy will maintain a 5% interest rate for investors during adverse conditions such as a recession or multiple loan defaults. In fact, in their previous offering of bonds to small businesses, some of those bond did default and Worthy investors didn't receive any interest payments. Worthy has said they are working to liquidate the property and return as much to investors as possible. 

Worthy bonds are not FDIC-insured (insured by the Federal Deposit Insurance Corporation). The FDIC is only used to insure bank account deposits and Worthy is not a bank so 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 0.50% to around 1.00%. 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.

Final Thoughts

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 growing American businesses, including real estate developers, while earning a reasonable return, 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.

Check out Worthy here >>