High Interest Savings Account Few Use

Earn high interest on your: short-term savings, emergency fund, maintenance fund, Christmas Club account. Don't settle for low bank accountant or money market fund rates.Whenever I attend a conference I look for things the crowds pass by. The mainstream information is still absorbed, but there always seems to be something most people pass that contains a lot of potential.

Last year at FinCon such an opportunity screamed to me. Several companies were offering 5% on savings investments with few strings attached. One was geared toward military people, but had some fees and restrictions I felt uncomfortable with.

The company that impressed me the most was Worthy Financial Inc. (Before you run out and invest with Worthy you might want to read the entire review first. There are some caveats.) 

Worthy is a simple concept. You invest in $10 increments buying 3-year Worthy bonds that pay 5% interest. You can withdraw funds at any time without fee. The process looks and acts much like a savings account, but there are some unique feature you need to be aware of.

 

Background

Sally Outlaw (yeah, the name does cause one to pause) is the co-founder and CEO. She has experience coming from 5 years as CEO of peerbackers.com and several security licenses. I had several long conversations with Sally at FinCon.

They also have Alan Jacobs, a securities attorney with 40 years of experience.

There are additional team members. The CEO and experienced securities attorney on the team are of vital interest for those wishing to invest in Worthy bonds and therefore mentioned.

The business — the entire concept of Worthy — is relatively new. They have only been in business since February 2016.

 

How it Works

Worthy invests money from the bonds making business loans backed by inventory of greater value than the loan. Interest paid by the business loans is used to pay the interest on Worthy bonds.

 

Source: Worthy Bonds website

 

How You Can Invest

There are several ways you can buy Worthy bonds. 

The idea, as Sally pointed out to me at FinCon, was to make it easy to invest small amounts of money with Worthy. They have this neat little app (which your favorite accountant does not use) that rounds up all your purchases from a credit card, debit card or checking account. 

Example: You fill your car with gas with a total charge of $27.50. The app rounds up the purchase to $28 and the extra 50 cents goes to Worthy. When the rounded up funds reach $10 you automatically buy a bond and start earning 5% interest.

This seems like a lot of horsing around for minor amounts of money unless you are just starting out. In my opinion you shouldn’t be spending that much if you don’t have much money so there shouldn’t be much to round up. And if you do have money, the extra nickles and dimes might be a nice forced savings account, but folks around here generally are responsible with their money and don’t need such tricks to save.

A second way to invest in Worthy bonds is with recurring investments. In this situation you just link the bank account you want money drawn from at the interval you choose.

I don’t use the recurring investment feature either as it doesn’t fit my financial situation, but may prove valuable to you. A good example of using the recurring investment feature might include saving a monthly amount toward your annual property tax bill.

The final way to buy Worthy bonds (and the way this accountant buys them) is manually. You go online and set up a lump-sum amount to be transferred when you want. Simple as that.

I made two small purchases over the last six months. The process was smooth, as you would expect from any money transfer. And the interest keeps growing.

Note: When you open your account be sure to set the “Automatic Reinvestment” in the Account Settings to “active”. Your interest will not earn interest if you don’t, which means you lose compounding!

 

Risks

It cannot be stressed strongly enough that this is not a guaranteed investment. While the loans Worthy makes to businesses are secured by inventory, there is no guarantee a loan could not go bad and the sale of inventory insufficient to cover the remaining loan balance. 

In this accountant’s opinion, you should only invest a portion of your liquid funds with Worthy. I have no reason to believe Worthy will default, but it is prudent to include Worthy bonds as a part of your portfolio mix only. 

 

Investing Accountant Style

I use Worthy for a portion of my working capital in my tax practice. The remainder sits in the Vanguard Prime Money Market fund. Both are easily accessible, but the MM is far more secure than Worthy in my opinion because MMs are far broader in their investments. 

Worthy is a good tool for saving for recurring expenses, such as: property taxes, insurance, planned medical expenses and the maintenance account for landlords. The recurring investment feature works well for people with these needs.

Dave Ramsey fans might find Worthy bonds a great place to hold their emergency fund or portion thereof (as long as this is only a minor part of your liquid cash and others funds are easily accessible should an emergency occur).

In my office I dropped in a lump sum. There is no scheduled need for these funds. They are there, growing 5% per year, while I decide what I want to do with the money. It is also a buffer for the end of the year when fiscal needs are greater in the office (property taxes, year-end training of employees, client mailings).

 

Worthy bonds might be a good fit for your situation. Check out their website and do your research before investing. Since bank and money market accounts earn only token interest, Worthy bonds are an option with potential for at least a reasonable rate of return that is greater than the rate of inflation.

Finally, please share your experiences with Worthy in the comments. This posts will have a long shelf life and you might know something about Worthy before I do.

 

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18 Comments

  1. Triple Fi Guy on April 22, 2019 at 12:06 am

    Interesting company/concept, although from my perspective, I’m not sure the risk is worth it when investing ones financial buffer or “emergency fund.”

    Say you had $10,000. Put it in a high yield savings account at the current going rate around 2.25% and you get FDIC insurance. In a year you’ve made $225. Get 5% on $10,000 and you’ve made $500. So $275 difference.

    But is it worth it to risk losing (defaulting) your whole $10,000 just for $275? Seems like a trivial amount to risk so much (you could work a couple days at a low paying job and make $275)

    Thoughts?

    • SMJ on April 22, 2019 at 5:41 am

      TripleFi Guy,
      I agree with your assessment of the risk-adjusted return on this. It’s a fascinating concept, however, for funds that need to stay secure, it seems the risk is not worth it. I do see this being a product to be considered for part a bond investment portfolio though.

    • Derby on April 22, 2019 at 9:05 am

      Worthy looks more akin to a regular bond than a savings/MM account. It’s a very new company, with a novel business model, and apparently no credit agency rating. The only financials I see are the ones provided to the SEC, which contain the troubling phrase “There is substantial doubt about our ability to continue as a going concern”.

      I’ve never looked at inventory from a creditor perspective. But from a small business accountant perspective I know it’s common for inventory to be near-worthless when a business fails. If Worthy invests in too many, say, Amazon sellers, and a significant percentage fail, Worthy may fail as well.

      Of course, any startup is at risk of failing. If this happens, Worthy may still redeem their bonds at full value or close to it. It would take a spectacular failure indeed to lose 100% of this investment. If I consider the convenience and 5% return worth it, I may make an investment with part of my working capital.

  2. TJ on April 22, 2019 at 2:03 am

    Sounds interesting, and risky. Want to see how this works out also.

  3. Tim on April 22, 2019 at 9:11 am

    Like your other articles, you provide useful insight. I had not heard of either Worth or Vanguard Prime Money Market fund, and the Vanguard fund sounds useful for idle cash. I have been putting my savings into four week Treasury bills. I have a Capital One money market account and I buy their CDs. If TD Ameritrade didn’t charge a transaction fee, I’d put the idle cash to better use.

    Looking further into Worthy, it looks like it’s peer-to-peer lending, like LendingClub. I have been gradually reducing what I have at LendingClub, since my interests have shifted to real estate. Does Worthy provide transparency into how the cash is used by borrowers?

    • Keith Taxguy on April 22, 2019 at 9:17 am

      Tim, I debated mentioning this has some of the flavor of Lending Club and similar platforms. I decided against since it is not “like” these platforms when you really think of it.

      I have used Treasury Direct in the past for the same purpose you have. It’s a good option.

      I also use Capital One 360 and Discover Savings, both excellent options for short-term cash.

      Worthy does not, to the best of my knowledge, provide transparency on the loans they make.

  4. Zac on April 22, 2019 at 11:52 am

    I’m a little troubled by a suggestion for people to put emergency funds into a possibly risky asset that you’re doing affiliate marketing for. Yikes.

    • Keith Taxguy on April 22, 2019 at 12:21 pm

      Here is my thinking, Zac. Your emergency fund should be a very small part of your net worth so getting a bit more in interest is compelling. On the other hand, if you have an emergency fund and nothing else it might be worth bifurcating; for example: Of a $1,000 emergency fund you could put $600 in the bank earning practically nothing and $400 in Worthy.

      Consider it this way. The younger you are the more risk you should be willing to accept because you have time on your side. If this wasn’t true nobody would ever star a business — too much risk. The same for other investments. The less you have the more you need to be in equities if you are ever to reach FI. The younger you are the more you need to be in equities because time is once again on your side.

      I also made it abundantly clear this is only for a small portion of your short-term funds. Your personal situation will determine the level you wish to invest in Worthy bonds. Emergency funds were only a suggestion.

  5. Mr. Hobo Millionaire on April 22, 2019 at 3:13 pm

    This is a buying bonds; not a savings account. A savings account is backed by the FDIC; this is not. I have been reading your blog for a few years, Keith. I don’t understand your mentioning of this for even an emergency fund. Making $50 on $1000 is not worth losing $1000 (in my opinion).

    Love your blog! Please don’t take my comment personally.

  6. Steve Adams on April 22, 2019 at 6:37 pm

    The structure is extremely similar to a bank CD just a smaller take by the middle man and no FDIC insurance.

    There is some risk in Worthy messsing up but maybe similar to Vanguard messing up.

    Then there is risk of vendor default – they are not explicit but it seems that as a bond if there is some default they cover that until they are at risk of bankruptcy which seems to me pretty small.

    As a place for some part of your cash holdings seems pretty reasonable.

  7. Katie Camel on April 24, 2019 at 10:36 am

    Thanks, Keith! I’ve been reading through their website and find it really interesting. I’m going to do some more research before investing, but it looks like a solid company from my cursory perusal.

  8. Austin D on April 24, 2019 at 12:55 pm

    Hi Keith, I wanted to bring to your readers attention some information from their SEC filing. It details some extreme financial troubles for the company even as they are getting free labor from their parent company:

    Here is substantial doubt about our ability to continue as a going concern.

    We began reporting revenues in 2018. In 2018 we generated net losses and had cash used in operations of approximately $143,000 and $45,000, respectively. At December 31, 2018 we had a working capital deficit, shareholder’s deficit and accumulated deficit of $1,203,680, $3,680 and $193,220, respectively. These conditions raise substantial doubt about our ability to continue as a going concern for a period of 12 months from the issuance date of this report. Our consolidated financial statements have been prepared assuming that we will continue as a going concern. No assurances can be given that we will achieve success in selling any material amount of our Worthy Bonds, or that our operations will provide sufficient revenues to cover our operating expenses.

    We made our first loan in September 2018 and as of March 25, 2019, we have five outstanding loans. While we have identified several additional opportunities for investment in the proceeds, our lending history is limited. Interest on the proceeds from our Regulation A+ offering will not cover interest payments accruing on the bonds or our operating expenses. Accordingly, until such time as we are able to generate significant income from the investment of the proceeds we will be required to utilize cash on hand to make the interest payments which will reduce the amount of proceeds available for loans by us.

    Competition for employees is intense, and we may not be able to attract and retain the highly skilled employees whom we need to support our business.

    Currently, our staffing needs are satisfied by a total of nine full time employees and independent contractors who provide a substantial portion of their time to us. Additional management and staffing are presently provided by our parent company at no cost to us. We will need to expand our employee base as our company continues to grow. Competition for highly skilled personnel, especially data analytics personnel, is extremely intense, and we could face difficulty identifying and hiring qualified individuals in many areas of our business. We may not be able to hire and retain such personnel. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we intend to invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements and the quality of our services and our ability to serve borrowers could diminish, resulting in a material adverse effect on our business. [/quote]

    So those operating expenses don’t include extra “free” staffing from their parent company!

    There is no public market for Worthy Bonds, and none is expected to develop.

    Worthy Bonds are newly issued securities. Although under Regulation A the securities are not restricted, Worthy Bonds are still highly illiquid securities. No public market has developed nor is expected to develop for Worthy Bonds, and we do not intend to list Worthy Bonds on a national securities exchange or interdealer quotational system. Bondholders should be prepared to hold your Worthy Bonds through their maturity dates as Worthy Bonds are expected to be highly illiquid investments.

    • Keith Taxguy on April 24, 2019 at 1:39 pm

      Austin, I read these reports as well (the earlier SEC filings along with the current report). I ran 2 hedge funds for over 10 years and included the same type of terminology as Worthy Financial even when we were generating 28% rates of return. GAAP sometimes make things look worse than they are so understanding the accounting rules also helps.

      Example: In the hedge funds I managed we bought charge-off receivables from banks and other third-parties. If we, say, bought a $1 million package of debt for collection, we did not have to record a single cent of profits until we recouped 100% of our investment. From a tax standpoint this was great! From an accounting standpoint it was concerning. The early years looked worse, while later on it looked like we were slamming it. In reality we were doing well all along. Even seasoned investors needed reminding of how we were required to record our income and expenses. (Technically, we could have had 100% of our original invested money in cash and millions in assets due to this accounting requirement.)

      I understand Worthy is a young company with major challenges. That is why I present the idea with the warning to only tickle it. I would never put more than 5% or so of my liquid funds in such an investment. Things like an emergency fund or working capital account are there in name only for many people might want to invest a small amount in Worthy bonds as long as they have much more in liquid assets.

      Worthy says they have 5 loans. That makes sense at this stage of the game. A handful of quality loans to well capitalized companies is ideal and better than a large amount of mediocre loans. The loans are backed by inventory. This isn’t the best guarantee, but still provides ample room to recoup most or all losses if a loan defaults.

      Growing a business is always painful. If it wasn’t everyone would be doing it. I have my own money invested in Worthy bonds because I want to support a new and growing company. Anyone buying Worthy bonds should have the same attitude, IMO.

      As for the “free” staffing from the parent company; the same thing happens in my practice and my firm is doing very well, thank you. This is not unusual for a stat up.

      There certainly are risks. The concept is easy and I outline that in my post. Invest in Worthy bonds that pay 5% interest. Pretty simple. The work behind the scenes is obviously much greater than what is seen at the surface. If your risk tolerance allows (this is not a guaranteed investment by any stretch of the imagination) you may wish to buy a few bonds to see how it works. It’s more a curiosity thing than a serious investment since it will be such a small part of your portfolio.

      And remember, America is built on this model. Tesla and Netflix are huge companies with huge negative cash flows; they may never turn cash-flow positive. Only time will tell. They all started from a much smaller footprint. Amazon also hemorrhaged cash until a few years ago.

      There are varying levels of risk, too. The S&P 500 index fund pays just under a 2% dividend yield. Government bonds are really safe. Bank accounts, too. I built my net worth by dabbling in lots of different investments. Some fail; others muddle along doing okay; and a few rocket higher. (I had an investment in the 1980s that decided to go public in the late 1990s. I was “given” shares of the IPO for being a loyal investor. It was a small investment that returned a mega profit.)

      The important point to take away is never invest so much that it could hurt you if it failed. If Worthy Financial failed it would be an irritant at best in my portfolio. Nobody should invest more than an amount that if it failed it would be more than an irritant.

  9. MarkieBoy63 on April 28, 2019 at 5:37 am

    A 60/40 Stock/Bond ratio has 90% of its risk in Stocks. Dividends are not “yield.”
    Never, never reach for yield in the bond market.
    It take a lot of yield to make up for a single default.
    Again, what are the fees?
    This investment is meant to be sold and not bought.

  10. Tony on April 28, 2019 at 6:03 pm

    Is this an affiliate marketing piece? If so, I seem to have missed the disclosure. Please confirm Keith.

  11. David on April 29, 2019 at 7:32 am

    Wow, I see a lot of skepticism in the comments. I guess that’s fair, given that WF is a young company and everybody likes “guaranteed returns”.

    I will share my experience with Worthy and a little bit of my background. Hopefully some of you will find it helpful.

    I may not be the most sophisticated investor out there but what I feel I am good at is finding true passive income opportunities and researching them. I simply love the idea of steady cash flow without much effort. I know, sounds crazy but I am weird like that… Nevertheless, this is why I am heavily invested in rental properties. The structure I use makes me basically put money into the deal and take monthly return without any hassle (topic for a different thread). But, liquidity is almost always an issue in long-term investing like real estate. Hence, for quite some time, I was looking for some passive income option with meaningful return but also to be fully liquid. Worthy bonds fit my criteria perfectly. For the last eight months or so I keep on my Worthy account anywhere between $90K to $100K. I don’t know if I should call it my emergency fund or portfolio diversifier but it simply is the money that I currently don’t use yet I’d rather get extra $5K a year from it than 1.5-2K from regular saving account. I have never encounter any problems liquidating my bonds and their app that allows you to buy/sell bonds is very straightforward. On the top of it, I have “reinvest my interest” function turned on, which makes me buy more bonds without putting more money.

    I only allowed myself to use Worthy as basically one of my saving accounts after quite extensive research. I actually personally reached out to the CEO Sally Outlaw and things are looking way brighter than they are obligated to report to SEC. They are on the track this year to become profitable, all of the loans are being paid on time, and for the last three months or so of the sales have been North to $1 million/month. Of course, the higher the sales of bonds the quicker they will become profitable as they don’t have shortage of loan applications… She was very confident that all the loans are assets backed in excess of loan value. So, the chances for people to lose their investment are very low. In fact, they are thinking of insuring the bonds once the profits allow them. She realizes that it’s a concern for people who don’t know much about the company. Anyway, this is my stand on Worthy, since most comments were from nonusers.

    My final thought after reading the comments though? We are all worried here about the safety and diversification of our portfolio but do you guys realize that most of the richest people on this planet did exactly opposite?! At some point of their lives they had all eggs in one basket with their accounts often showing near-zero balances! They risked it all, went all in or whatever you want to call it. I am not necessarily advising here to do the same but being worried about every dollar you invest and expect guaranteed returns may not get you that far either…

    Cheers,

    DG

  12. Getting Worse on May 5, 2019 at 7:26 pm

    Wow, dude, you’re definitely hungry for more money. It must be true…the more money we have the greedier we get? Those clicks and affiliate marketing must be precious. Sad… emergency funds investing in such a scheme…

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