APY GUY: Maximize Your Savings & Earnings

Savings Accounts

OneWest Bank CD Rates: Up to 0.45% APY + 0.15% Money Market Account

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The OneWest Bank deposit account suite. Available online. FDIC insured.

[Update March 2022: OneWest bank has yet to raise the rates on any of their fixed rate CDs this year. They have, however, lowered the top yield on their variable rate money market account from 0.20% APY to 0.15% APY. See all rates below.]

OneWest Bank is an offshoot of CIT Bank that was founded in 2009 in Southern California.

A hodgepodge of private equity investors led by Steve Mnuchin established OneWest Bank through a holding company they bought into called IMB Holdco.

Today, OneWest Bank has headquarters in Pasadena, California and has 70+ locations throughout the southern portion of the state.

They offer a full range of deposit accounts, IRAs and loan products, but many of their products are limited to residents in Southern California.

The following FDIC-insured deposit accounts can be opened online by consumers anywhere in the country:

  • CDs (certificates of deposit)
  • Personal Savings account
  • Green Savings account (a high yield online savings account)
  • Premium Money Market account

For the purpose of this review, we will focus on OneWest Bank’s fixed and variable rate savings products listed above that are available online and nationwide.

OneWest Bank CD Rates + Account Details

OneWest Bank currently offers ten CDs with terms ranging from 3 month to 5 years. All CDs are federally insured by the FDIC up to the applicable limits and come with a minimum deposit requirement of $1,000.

OneWest Bank CD Rates

CD TermAPY
3 months0.10%
6 months0.10%
9 months0.15%
12 months0.25%
13 months0.30%
18 months0.30%
2 years0.35%
3 years0.40%
4 years0.40%
5 years0.45%

To give the yields above some context, the current national average on a 12 month CD and a 60 month CD sit at just 0.14% APY and 0.28% APY, respectively according to FDIC data.

We should note that CD rates at OneWest Bank may differ from those at CIT Bank.

Also, the $250,000 in FDIC coverage spans deposits in both banks. Therefore if you hold a CD at CIT Bank with $100,000 in the account, you would only be provided $150,000 in FDIC coverage for deposits at OneWest Bank.

Interest compounds daily on all OneWest Bank CDs and is credited either monthly, quarterly or at maturity depending on the term of your CD.

Early Withdrawal Fees and Grace Period

OneWest Bank allows for a grace period of 7 days upon the maturity of your CD in which you may add or withdraw funds penalty free. This is a slightly tighter deadline than most banks and credit unions offer which is a 10 day grace period.

OneWest Bank will send out grace period notifications prior to your CD maturing, however, we would recommend setting up your own notifications as well if you plan on moving funds about. If nothing is done during the 7 day grace period the CD will renew with the same terms and the going APY.

If you need access to funds prior to the maturity of your CD, OneWest Bank will impose an early withdrawal fee.

OneWest Bank Early Withdrawal Fees

CD TermFee
90 days – 1 year90 days’ simple interest
1 year – 18 months180 days’ simple interest
2 years270 days’ simple interest
More than 2 years2% of amount withdrawn

These early withdrawal fees are less stringent than some we’ve seen lately that have the potential to eat into your principal.

Personal Savings Account APY + Details

OneWest offers a personal savings account that can be opened by anyone in the country either online or over the phone (or in a SoCal branch).

It comes with a minimum deposit requirement of just $100, but imposes a $3 monthly service fee if your average daily balance dips below $1,000. Anyone over the age of 55 or minors under the age of 18 are exempt from this fee. You must also elect to receive e-statements.

Rates are paid in tiers based on your average daily balance during the month. Currently all tiers other than the $100k + tier pay the same rate and APY. Rates on the personal savings account are variable and subject to change at any time.

OneWest Bank Personal Savings Account Rates

BalanceFeeAPY
$100 – $999.99$3/mo0.05%
$1k – $4,999$00.05%
$5k to $9,999$00.05%
$10k – $24,999$00.05%
$25k – $49,999$00.05%
$50k – $99,999$00.05%
$100k +$00.10%
$10m +$00.05%

To give these yields some context, the national average for a savings account sits at just 0.06% APY, according to recent FDIC data.

Features of OneWest Bank Personal Savings Account:

The personal savings account comes with some OK perks but nothing really out of the ordinary for a modern day online savings account.

The main perks are:

  • 24/7 access to online banking and an automated telephone system. They also have apps available for download on IOS phones and Android devices.
  • Check writing capabilities
  • ATM card and free access to OneWest ATMs
  • Online funds transfers

Green Savings Account Rates + Details

The OneWest Bank Green Savings account is similar to the Personal Savings account in many ways but with a few key differences.

The big ones being that this account comes with ZERO monthly fees but also ZERO check writing capabilities and no ATM card.

It can also be opened online or in a local branch whereas the Personal Savings account can also be opened over the phone.

The rates are nearly identical at the moment except at the $50k and $100k marks and also pay interest on tiers.

OneWest Bank Green Savings Account Rates

BalanceFeeAPY
$100 – $999.99$00.05%
$1k – $4,999$00.05%
$5k to $9,999$00.05%
$10k – $24,999$00.05%
$25k – $49,999$00.05%
$50k – $99,999$00.10%
$100k +$00.15%
$10m +$00.05%

This account also requires a minimum deposit of $100 to open.

We should also note that all variable rate online savings accounts and money market accounts offered by OneWest Bank come with the limitation of just 6 transfers per month per federal regulation D.

Premium Money Market Account Rates + Details

The last of the variable rate products offered by OneWest Bank which can also be opened online throughout the country is their “Premium Money Market” account.

This account’s features are identical to the Personal Savings account but it comes with a steeper minimum daily balance requirement (of $10,000) to avoid a steeper fee of $10.

It comes with the same ATM card, online transfer and check writing capabilities.

The rates are also paid on tiers.

OneWest Bank Premium Money Market Account Rates

BalanceFeeAPY
$100 – $999.99$100.05%
$1k – $4,999$100.05%
$5k to $9,999$100.05%
$10k – $24,999$00.05%
$25k – $49,999$00.05%
$50k – $99,999$00.10%
$100k +$00.15%
$10m +$00.05%

This account also requires a minimum deposit of just $100 to open, but remember you will be on the hook for a $10/month fee if you do not maintain an average daily balance of $10,000 or more.

To put the yields in perspective, the current national average for a money market account sits at just 0.08% APY, according to FDIC data.

Final Thoughts

While OneWest Bank has offered more lucrative savings rates on both variable rate accounts and fixed rate certificates of deposit in the past, their current yields barely keep up with the national average(s) for each respective term.

On top of that, you’re on the hook for monthly fees with most of their variable rate savings accounts unless you can meet certain requirements.

We would suggest considering a credit union with nationwide acceptance or even an online bank if you’re after high rates and no fees.

Lili Banking for Freelancers Review – 1.0% APY savings!

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It’s no secret that the way people work is changing.

Remote work, in particular, has been rapidly evolving as companies attempt to navigate the major shifts brought on by the COVID-19 pandemic.

Although COVID has accelerated the shift to remote work, the combination of digitalization and globalization had already been driving more people to remote work, particularly freelance work, prior to the pandemic.

In the 2000s and 2010s, a small subset of workers were able to work from home in certain situations, but in 2022 freelancers make up over one-third of all workers, according to Zippia.

And as the population of freelancers grows, so too does the need for financial solutions just for them. Because working freelance just isn’t the same as getting a check every week from your employer, and your banking shouldn’t be either.

That’s what inspired Lili, the finance app for freelancers. Lili offers everything from tax help to money management tools for anyone without a traditional 9 to 5. Learn everything you need to know about Lili and whether it’s right for you here.

What Is Lili

First things first: Lili is an app, not a bank. It is provided by Choice Financial Group, member FDIC, as a banking solution and service.

More specifically, here are the highlights of what Lili offers.

  • Visa Business Debit Card
  • Expense management
  • Tax-saving tools
  • Fee-free overdraft
  • Invoice services
  • Automatic Savings with 1.0% APY

Some of these are free and some will cost you. Although Lili is marketed as a free app, you need to have the paid Lili Pro subscription for access to everything. More on what’s included with each plan later.

Lili Visa Business Debit Card

About the debit card. There are no service or transaction fees to use and you can earn cash back on almost every purchase. Note that you need the paid Lili Pro plan to unlock cash back.

And when you use the Lili Visa Business Debit Card to pay business expenses, you can instantly categorize transactions to keep your finances organized (as any freelancer knows, this is what surviving tax season is all about).

Plus, it’s compatible with Google Pay and Apple Pay. You can use your card at more than 38,000 surcharge-free ATMs in the MoneyPass network to deposit or withdraw cash.

How It Works

Lili offers many features you may be interested in as a freelancer or small business owner. 

First, you can take advantage of early direct deposit to get paid up to two days earlier. You just have to link your bank and fill out a direct deposit form to be eligible. There is no guarantee that you’ll get the money two days early, but there’s a good chance it’ll be quicker. You’ll get a notification when you receive your direct deposit.

Lili also makes receiving and sending payments easier by allowing you to link your account with most major payment apps like PayPal, Venmo, Cash App, and more. You should have no trouble getting paid through your platform of choice or paying employees or vendors electronically. You can link to Uber, Lyft, and Shopify as well.

Here’s a breakdown of Lili’s other features including whether you need the Pro subscription.

Tax Optimizer

The Tax Optimizer is a feature that lets you track write-offs, set aside money for taxes, and more. You can easily track your tax write-offs by categorizing the business expenses you put on your Lili Visa Business Debit Card immediately after they post. 

And if you use this card for personal expenses as well, you can separate these out and even split transactions. The Tax Bucket option allows you to set aside the money you will need to pay self-employment taxes. The Receipt Scanner lets you upload receipts for business-related purchases. 

The app also gives you the option to pre-fill your Schedule C form and file/share it when you’re done. And finally, Lili automatically generates quarterly and annual expense reports by compiling all of the transactions you’ve tracked as business expenses into one exportable file. Visit the Tax Resources page for help using any of these features or to calculate your estimated taxes.

Automatic Savings

The option to create an emergency savings account or bucket in Lili is not exclusive to Pro subscriptions. Anyone can set aside money for savings by going to their account and selecting “Open an Emergency Bucket.” However, only Lili Pro users are eligible to use the Automatic Savings feature and earn interest on their money. 

With Pro, you can earn 1.00% on any positive balance in your savings bucket and enable automatic transfers from a linked bank account into your Lili savings. You can have as little as $1 transferred automatically a day and change the amount at any time. You can also make manual transfers whenever you want. There is a limit of six withdrawals per statement period.

Lili will provide monthly savings updates to let you know how much you have in your bucket. You’re free to transfer money out of your savings bucket to make it available for spending or close the bucket entirely if you choose. The interest you earn will be automatically deposited into your savings.

BalanceUp

Another Pro exclusive feature, BalanceUp is Lili’s version of overdraft protection. When you overdraft your account using your Lili Visa Business Debit Card, Lili will just cover the transaction for you when you have BalanceUp enabled and withdraw the money from your next paycheck. There is no penalty fee for using this feature but just remember that it only covers debit card purchases. Overdrafts up to $200 are protected.

Cashback

Earning cashback on your Lili Visa Business Debit Card purchases is an option for Lili customers only. Basically, this is just like any other rewards card. All of the business and personal expenses that you charge to your Lili card qualify to earn cash back, which is deposited into your Lili main account. You do not need to enroll in the rewards program to start earning.

How much cashback you earn depends on the merchant. Check the offers page for a list of current promotions to maximize your earnings.

Invoice

Finally, there’s the Lili Invoicing Tool. Unfortunately, this too is a Lili Pro exclusive. This feature allows you to do your business bookkeeping in the Lili app at no added cost. You can create and send invoices, track business expenses, record payments (whether to vendors or employees), and upload your business receipts. Lili will store all of this information for you for easy downloading when you need it. There is no limit to how many invoices you can create and send.

When you send an invoice from Lili to a customer, it includes your Lili account and routing number so they can pay you directly into your account.

Account Terms

There is no minimum balance requirement for this account, so you can get started with as little as $0.01. And to earn interest on your savings, if you have the Pro plan, you only need to maintain a positive balance. 

You may find the spending and funding limits to be somewhat restrictive if you have the Lili Standard subscription, but Lili Pro offers a lot more flexibility. Here are the account limits for Lili Standard and Lili Pro.

Lili Standard

Daily Spending Limits:

  • Card purchases: $3,000
  • ATM withdrawals: $500
  • ACH outbound transfers: $500

Daily and Monthly Funding Limits:

  • Debit card funding: $100/mo
  • ACH inbound transfers: $500/day and $2,000/month
  • Cash deposits: $1,000/day and $9,000/month
  • Direct deposits: $25,000/day and $50,000/month
  • Mobile check deposits: $2,000/check and $2,000/day and $6,000/month

Lili Pro

Daily Spending Limits:

  • Card purchases: $5,000
  • ATM withdrawals: $500
  • ACH outbound transfers: $2,000

Daily and Monthly Funding Limits:

  • Debit card funding: $100/mo
  • ACH inbound transfers: $1,000/day and $5,000/month
  • Cash deposits: $1,000/day and $9,000/month
  • Direct deposits: $25,000/day and $50,000/month
  • Mobile check deposits: $5,000/check and day and $50,000/month

Lili is provided by Choice Financial Group, member FDIC. Your funds are insured up to the federally permitted limit of $250,000.

Who it’s For

You might benefit from a Lili account if you work for yourself, especially if you have a lot of business expenses to track. This app is ideal for keeping your business spending and saving in one place, and it makes doing taxes and sending invoices as a freelancer a whole lot easier. Anyone 18 years old or older can open an account.

You can use this app whether freelancing is your primary source of income or more of a side hustle. It doesn’t matter if you’re an independent contractor working on your own or you own a small business made of freelancers and temporary workers. The features and pricing are the same.

This is also a good choice if you’re looking for help navigating life as a freelancer, as Lili offers a number of free resources on its site. These include a Tax Resources page, a Freelancer’s Guide that helps you get started freelancing by detailing everything from taxes to balancing work with your desired lifestyle, a robust help center, a blog, and an FAQ page. There are even COVID resources and career tips on the site.

Fees

That’s the best part: Lili doesn’t charge fees…almost.

There are no monthly maintenance fees, low balance fees, overdraft fees, card fees, or foreign transaction fees. And when you choose from one of over 38,000 in-network ATMs to make deposits and withdrawals with your Lili debit card, there are no ATM fees either.

But if you want to unlock everything, you need to pay for the Pro plan. Lili Pro costs just $4.99 a month and does not come with any additional fees besides the subscription charge.

Account Types

There are two types of Lili plans: Lili Standard and Lili Pro. Lili Standard is the basic plan that is free to open and use. It includes the optional Visa Business Debit Card, early direct deposit feature, basic expense tracking, tax tools, and ATM access.

But if you want to take advantage of everything Lili has to offer, you need to pay for Lili Pro. This subscription includes overdraft, saving, expense management features, and more. You can cancel Lili Pro or change your plan at any time.

Here are the features that are exclusive to Lili Pro:

  • BalanceUp overdraft protection up to $200 on debit card purchases
  • Emergency savings account with 1.00% annual interest
  • In-app invoicing tool that allows you to create and send unlimited invoices
  • Cashback rewards with your Business Visa Debit Card (Standard users can use the card but do not earn rewards)
  • More expense management capabilities such as the option to sort business transactions in real-time to maximize your tax deductions
  • Higher spending and funding limits (see “How It Works” for details)

Sign-Up Bonus

Lili has a referral program that allows you to earn $100 per friend you successfully refer, for both you and your friend. Everyone gets a unique referral link to share. To qualify for the bonus, your friend must enroll in Direct Deposit using your unique link and receive at least $250 in a single transaction within the first 45 days of opening their account. 

Rumor is that this referral/sign-up bonus might change soon or go away, so hurry to take advantage.

Final Thoughts

As a freelancer, the last thing you need is to make banking any harder on yourself than it needs to be.

Lili might be right for you if you’re a freelancer looking for a fee-free banking solution that goes beyond the basics and helps keep track of your finances as a self-employed person.

Simple High Yield Account – 0.40% APY!

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All Simple accounts will automatically transfer to BBVA accounts May 8, 2021.

[Update April 2021: Simple accounts will become BBVA accounts as of May 8, 2021. CDs have been discontinued since February. To learn more visit the Simple to BBVA transition FAQ page here.]

Simple is another app-based, FinTech company acting as a mobile bank such as Aspiration and Affirm; which we covered earlier this month.

Simple leverages BBVA USA for its banking services and FDIC insurance, but then layers on its budgeting tools and fee-free accounts.

It was founded in 2009 in Portland, Oregon, but was acquired by BBVA in 2014. Therefore all money in a Simple account is actually held at BBVA USA, the American subsidiary of Banco Bilbao Vizcaya Argentaria, S.A., and is FDIC-insured up to the applicable limits.

Simple has expanded its product suite since their inception and acquisition and now offers the following types of accounts:

  • Online checking
  • High yield checking
  • Shared checking
  • Certificates of Deposit
  • Personal Loans

For the purposes of this review we will stick to the high yield checking account and the certificates of deposit that Simple has to offer. These are the only Simple accounts that currently provide a return on your savings.

To see if these Simple products are right for you, continue reading our full review of their features, account details and potential drawbacks below.

What is the Simple Account?

Simply put, the Simple account is an app-based smart wallet that can be managed on your desktop, tablet or mobile phone. It comes with free checking and budgeting tools that keep your personal finances organized.

While the account primarily functions as a checking account – complete with a debit card – it also has an add-on “Protected Goals Account” that functions as a high yield savings account and safe-guards your funds against unwanted spending. This Protected Goals Account also pays a solid 0.40% APY.

Simple Account Features and Drawbacks

The Simple Account comes with many features that an ordinary checking account does not. It also has some limitations in which standard checking accounts at brick and mortar banks and credit unions do not.

Simple Account Features:

  • Safe-to-Spend. The first thing you see when you login is your account balance minus any upcoming bills, pending transactions, or Protected Savings Goals. Safe-to-Spend gives users a complete picture of what they can safely spend that day.
  • Automate savings with deposits into your Protected Goals Account.
  • 0.40% APY (for funds in protected goals account)
  • No monthly fees
  • No minimum balance or deposit requirements
  • Mobile check deposit functionality
  • Debit card
  • Check writing (It costs $5 for a book of checks.)
  • Budgeting and automatic savings tools
  • No overdraft fees (Simple will reject transactions that will overdraw your account)
  • 40,000 fee-free ATMs through the Allpoint network
  • No fees from Simple when using out-of-network ATMs
  • 1% international transaction charge when you use your debit card outside of the U.S.

Drawbacks:

  • No ATM reimbursements on out of network ATM surcharges
  • No physical branches
  • No online bill payment. Read more about why they pulled this functionality here.

Simple Protected Goals Account Features + APY

The Simple Protected Goals Account is separate from your Simple account but money can be transferred easily between the two. Simple keeps these accounts separate to protect the funds designated for savings against any unwanted, accidental spending.

When you open the Simple Protected Savings Goal account your first goal will be automatically created for you. You can add and delete others, but this initial one may not be deleted. It is also where your accrued interest will get credited to at the end of each month.

Once you set a goal for a specific expense or purchase, Simple will automatically put away money each day until the goal is achieved. There is also a “Save It Now” feature for one-off transfers to savings goals.

Simple Protected Goals Account

BalanceAPY
$0.010.40%

To put Simple’s APY in perspective the average yield on a traditional savings account sits at just 0.07% APY nationally.

On top of the great yield, there are some other noteworthy features of the Simple Protected Goals Account. These are:

  • Set specific goals with end dates
  • Automated savings via transfers from Simple Account
  • Only requires a penny to get started
  • No monthly service charge(s)

Simple No Penalty 12 Month CD

If you’re in the market for an FDIC-insured, fixed rate certificate of deposit then you may want to check out Simple’s 12 month No Penalty CD. It is currently their only CD available, but comes with an attractive yield and terms.

As the name implies, this CD does not penalize you for early withdrawals if you need your cash prior to the 12 month maturity. You will have full access to your funds after 7 days of opening the account.

Simple 12 month No Penalty CD

Due to the transition to BBVA, Simple no longer offers CDs at this time.

TermMin. DepositAPY
NANANA

To put this offer in perspective, the current national average for a 12 month CD sits at roughly 0.22% APY.

Simple Mobile Apps

Simple’s primary user-base is younger, tech savvy individuals between the ages of 18 and 35.

The Simple app is available on iTunes and Google Play and scores a 4.6 and 4.4 star rating out of 5, respectively. This is better than the average mobile banking app rating of 4.05 out of 5 for a bank and 4.15 out of 5 for a credit union according to MagnifyMoney.

With their mobile apps you can:

  • Deposit checks remotely by taking a picture of it with your phone (maximum $5,000 per day). Please allow 1-9 business days before the funds are available. There is also a 10 check per week max with this feature.
  • Manage, budget and transfer funds on the go. You can set up new goals or instantly transfer money to existing goals. You can also monitor safe to spend amounts, daily transfers to savings goals and debit card spending.

Final Thoughts

If you’re looking for a simple, low-cost digital bank with modern money management tools then Simple is certainly worthy looking into.

This digital payment account works with a debit card and checks and provides a respectable APY on idle funds that you stash away into protected goals.

The main downside is the lack of any online bill pay feature(s) which may prevent you from keeping this as your primary account.

Credit Karma Savings Account – 0.30% APY!

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image credit: creditkarma.com/savings

[Update January 2021: The Credit Karma Savings account starts the year offering 0.30% APY. Down from 0.40% APY in December of 2020.]

You probably know of Credit Karma for pioneering the ‘free credit report’ back in 2007 which gave consumers access to their credit scores from the three major credit bureaus at no cost.

Perhaps you may not know, however, that as of October of 2019, Credit Karma entered the online savings account game with their high yield savings product.

Today, their high yield savings account is still quite popular, easy to open and comes with a solid APY (annual percentage yield) relative to the current national average.

To see if this product is right for you, continue reading our comprehensive review below.

Credit Karma High Yield Online Savings Account Rate + Details

There is no minimum deposit required to open Credit Karma’s online savings account and the minimum balance required to earn the advertised APY is just $0.01. In line with Credit Karma’s other products this one also casts a wide net and is available to anyone over the age of 18 with internet access.

That said, it also caters to higher end individuals and families by extending FDIC insurance up to $5,000,000. The standard amount at any bank or credit union is just $250,000 per depositor or $500,000 for joint accounts. Credit Karma leverages the FDIC insurance limits of MVB Bank, Inc. and its deposit network. We discuss this more below.

Credit Karma High Yield Online Savings Account Rate

Min. DepositMin. BalanceAPY
$0$0.010.30%

To put this yield in perspective, the current national average for a savings account sits at just 0.07% APY. Some of the top APYs from online banks hover in the range of 0.50 – 0.60% APY. We should also note that these rates are variable and are subject to change at any time without notice.

As with other online bank accounts and cash management accounts, you’re limited to just 6 withdrawals per monthly statement cycle in accordance with Regulation D by the Federal Reserve.

Account Drawbacks

The primary drawbacks to take into consideration when deciding if Credit Karma’s online savings account is right for you are:

  • Limited access to cash. There is no ATM or debit card issued with this account nor does this account come with any check writing capabilities. Your access will be limited to 6 withdrawals per monthly statement cycle which may be used to transfer money to an external bank for easier access.
  • Interest compounded monthly. Many online savings accounts feature daily compounding schedules for your balance which leads to higher APYs. In more favorable savings rate environments, the compound frequency has an even greater impact on overall APY.
  • FDIC insurance may be lower than expected if you hold funds at a partner bank. The funds you hold at this partner bank would subtract from the $250,000 FDIC coverage they can provide.

How to Open the Credit Karma Savings Account

Opening the account is a painless, three step process that should take all of 5 minutes to complete. If you’re one of the more than 100 million consumers who already have a Credit Karma account then it will be even faster!

Here’s how to get started:

  1. Navigate to the Credit Karma High Yield Savings page here.
  2. Click on the big green “Start saving” button.
  3. At this point, you can login if you’re currently a user of Credit Karma or create an account.
  4. Creating an account is a three step process. Step one is to confirm an email address, step two is to enter in your personal information (home address, phone number, etc) and step three is to confirm your identity via your social security number
  5. After these three steps are completed, Credit Karma will call or text you with a security code which you’ll need to enter on your computer screen. This allows you to connect your bank.
  6. If you bank with one of the major institutions then you should be able to provide your basic online account information and this should sync up these two accounts.
  7. Now you’re ready to make your initial transfer into your new Credit Karma savings account!

Items to have handy:

  1. Social Security card if you do not know your number
  2. State ID or driver’s license

How to Withdraw Funds

Once your account is opened there may come a time when you need access to some of the funds you’ve stashed away. Luckily, transferring funds to your connected bank is both easy and free with the Credit Karma Savings account. Here’s how to do it:

  1. Login to your account.
  2. Select withdraw.
  3. Under ‘withdraw amount’ you can enter the exact amount you wish to transfer.
  4. Click withdraw.
  5. Confirm everything you entered is accurate on the confirmation screen and click confirm.

You may not exceed $10,000 in daily transfers or $50,000 in monthly transfers and, as mentioned, you’ll be limited to 6 withdrawals per statement period.

Credit Karma + MVB Bank, Inc and FDIC Insurance

Credit Karma is not an actual bank themselves but they have partnered with MVB Bank, Inc to leverage the banking services of their network.

When you open a high yield savings account with Credit Karma, your funds are deposited into your respective account at MVB Bank and its deposit network of 800 different FDIC-insured, banking institutions.

Once you’ve opened the account, more information can be found about the MVB Bank network in your savings agreement.

By leveraging the FDIC insurance of the banks in MVB Bank, Inc’s network, Credit Karma is able to offer its high yield savings account holders FDIC insurance up to $5,000,000 – or 20x the amount of any standard bank or credit union which currently sits at $250,000 per depositor.

The main caveat to note here, is that each bank can only provide up to $250,000 in FDIC insurance coverage per individual, therefor if you already have funds in one of the network banks Credit Karma/MVB Bank are trying to leverage, your FDIC insurance coverage will be $250,000 minus the amount you hold in that institution.

Final Thoughts

If you’re looking for a low maintenance, easy to open, online savings account with a competitive APY, then Credit Karma’s high yield online saving account may be a good fit for you.

On top of that if you benefit from FDIC coverage beyond the normal maximum of $250,000 and up to $5,000,000 then this account is even more attractive.

That said, if you value in person banking and easy access to cash along with a respectable APY, then you may be better off going with a regional or nationally available credit union.

WebBank Savings Account Review & CD Rates

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image credit: webbank.com

WebBank is a small and relatively new industrial bank based out of Salt Lake City, Utah.

You’re probably unfamiliar with the name, but you may have indirectly conducted business with the bank without realizing it. WebBank works behind the scenes serving commercial partners such as Dell, Paypal and LendingClub with working capital, loans and/or branded credit cards.

On the consumer savings sider, WebBank offers a small suite of FDIC-insured deposit products – namely CDs and a savings accounts.

The savings account comes with a mediocre APY at the moment, but has been quite competitive in the past. Their CD rates are comfortably above the national average, but still less competitive than other offers found online.

In our review below we will take a look at the APY, features, and account details of WebBank’s savings products as well as general customer sentiment.

WebBank Savings Account Rate + Account Details

The WebBank savings account is the most competitive product in terms of APY in its suite of savings products. It requires a minimum balance of $1,000.

WebBank Savings Account APY

BalanceAPY
$1,000 +0.40%

To put this offer above in perspective, the national average for a savings account sits a just 0.07% APY currently. That said, there are several online-only banks with better rates.

Interest is compounded daily and credited monthly. You may choose to withdraw this and have it transferred to another account, or you can allow it to default back into this account to compound further.

The online savings account comes with no fees and also no in-person banking options. They have no mobile banking apps to conduct online banking activities and no debit cards or check writing capabilities. It is simply a place to stash cash and have it earn interest.

Web Bank Fee Schedule

TypeFee
Monthly Maintenance$0
Electronic Funds Transfer (ACH)Free
Outgoing Wire$25
Paper Statements$5

You can easily transfer money to or from this account via preauthorized/automatic transactions with an external account. This can be in the form of ACH, internal, or wire transfers and can be initiated through the online banking platform or by calling Customer Support.

WebBank CD Rates + Account Details

At the moment, WebBank’s certificate of deposit products are nothing special compared to competing offers out there, but they do beat the national average quite handily. To put the offers below in perspective the current national average for a 12 month CD sits at roughly 0.28% APY.

CD TermAPY
6 month0.10%
1 year0.25%
2 year0.25%
3 year0.25%
5 year0.25%

The minimum opening deposit for a WebBank CD is on the steep end at $2,500. Many of the other popular online banks set their minimum deposits on CD’s close to $1.

Interest is compounded daily and will be credited automatically back into the certificate account unless you elect to have it paid out instead, and this can be done whenever you choose—one-time, monthly, or periodic. It is all at your discretion.

Early withdrawal fees are charged as follows:

  • pay 3 months’ simple interest when you make an early withdrawal from an account of less than 1 year,
  • pay 6 months’ simple interest when you make an early withdrawal from an account of between 1 and 2 years,
  • pay 9 months’ simple interest when you make an early withdrawal from an account of 3 years, and
  • pay 1 year’s simple interest when you make an early withdrawal from an account of 5 years.

The maturity grace period is 10 days, so do your best to withdraw some or all of your money, change the terms, or renew your account within this time period when your account reaches its maturity date so that you’re not charged early withdrawal fees.

WebBank Banking Experience and Consumer Reviews

One major con of WebBank is its online platform. Your first impression of the WebBank site won’t be good and it likely won’t get better the more you explore. And not only is the website unattractive and dull, it also is not as comprehensive as it should be. There is very little information available on anything and the site is poorly organized. Even just finding the customer service phone number is a chore and, for some reason, account rates are listed in their own separate section rather than on the pages for their respective accounts.

Poorly done though as the website may be, it’s also your only option when you’re a WebBank customer. Don’t plan on managing your WebBank accounts from your phone—there are no WebBank mobile apps on the market. There is also, of course, no in-person banking as WebBank does not have in-person branches.

There are also no ATMs or ATM cards, so make sure you know what you’re signing up for if this will make things inconvenient for you. If technology-based banking feels more tedious to you than traditional banking, then WebBank—or any other fully digital bank—won’t be a good fit.

WebBank’s customer satisfaction is decent with an average user rating of over 3 stars. Out of 634 user reviews on WalletHub, WebBank scored a 3.6. Unfortunately, however, user ratings are often for WebBank’s Fingerhut credit accounts rather than for WebBank’s deposit products, making forming an accurate summary of reviews difficult. 

For those that are confused, Fingerhut is a mail order corporation offering users the option of applying for credit via a Fingerhut Advantage Credit Account issued by WebBank. This online retailer sells just about any product you can think of at discounted prices on top of approving customers for credit that might not otherwise be approved for credit. They also offer a Fingerhut FreshStart Installment Loan. These accounts can help you build your credit and give you access to the shop’s wide range of products.

Simply put, it isn’t exactly clear what the general consensus is on the overall banking experience provided by WebBank. Because many people that have a Fingerhut credit account might have no experience with other WebBank deposit and savings products, it wouldn’t exactly be accurate to count a review for Fingerhut as a review for WebBank. 

But from what has been said about WebBank banking specifically, customers are happy enough with the rates/terms but unhappy with the customer service and accessibility. Many WebBank users are discontent with the customer service they’ve received with this bank and others have said they haven’t been able to receive help at all due to busy phone lines and unavailability of representatives. Users have called the bank “difficult to contact” and the service “very bad” when they are able to get through to a representative. Hopefully, should you bank with WebBank, your experience will be different. 

To contact customer service, you have a few options. One, you can fill out the inquiry form on their website and wait an unspecified amount of time for someone to get back to you. You can also call 1-(844)-994-2265, but this line is only available Monday through Friday from 8 AM to 5 PM Mountain Time. Finally, you can email customer support at customercare@webbank.com or send a letter in the mail to the address: WebBank Attn: Deposit Operations 215 South State Street, Suite 1000 Salt Lake City, Utah 84111.

Final Thoughts

WebBank is probably a lesser-known online-only bank for a reason. The products and service quality you’re going to get when you bank with WebBank is likely going to disappoint and the uncompetitive rates on their accounts just aren’t worth it currently. Sure, WebBank’s accounts come with minimal fees and rates that are technically above average (a common pro of online banks), but the bank doesn’t have an app and its online platform isn’t comprehensive or user-friendly, which pretty much negates the point of an online-only bank.

It would be one thing if WebBank’s savings or CD accounts were far away and the best in terms of rates and/or flexibility, but at the moment they are just not, so there’s almost no reason to choose them over one of countless “other guys” when WebBank is less accessible, their customer service worse, and their overall usability lower than most.

Complete Guide to Peer to Peer Lending [As Investor & Borrower]

Written by:

Peer to Peer platforms connect borrowers with investors seeking higher rates of return.

The current interest rate environment makes it difficult for investors to earn a reasonable rate of return. Income investors, such as retirees, need earnings to pay for living expenses, and producing a sufficient level of income is a challenge.

Investment rates of return at traditional lending institutions are near historical lows. Savings accounts, checking accounts, and certificates of deposit rates may not be attractive to you.

A growing number of investors and savers are considering peer-to-peer platforms as a viable alternative to traditional savings accounts or deposits.

Peer-to-peer (P2P) lending is an investment vehicle that can produce higher rates of return for investors who are willing to accept a higher level of risk. This comprehensive guide explains P2P lending, and the pros and cons for investors and borrowers. 

This guide also reviews the top eight P2P platforms, along with the advantages and drawbacks of these institutions.

P2P lending was started to provide borrowers an alternative to traditional banks. P2P platforms connect people who need to borrow with investors who are seeking higher rates of return. P2P firms use data analytics to assess the creditworthiness of investors, and to monitor the risk of borrower defaults.

In 2005, Zopa, Ltd. started P2P lending in the UK, and Prosper Marketplace started operations in the US. In 2008, the Securities and Exchange Commission (SEC) required P2P lenders to submit to oversight rules. The SEC determined that the P2P lenders were selling unregistered investment securities, and required more regulation. 

Today, P2P firms must provide an SEC registered prospectus to each investor.

Loan originations reached $36 billion in 2015, but the industry started to experience larger than expected loan default rates. In 2016, the US Treasury called for increased oversight of P2P lending after LendingClub asked its CEO and other senior managers to resign for poor management practices.

Both investors and borrowers need to understand the basics of P2P lending before opening an account.

How Does P2P Lending Work?

Here is the process a borrower can use to apply for and repay a P2P loan:

  • Apply: Create a login on the P2P platform, and enter the information requested to apply for a loan. Most sites use your Social Security number to determine the interest rate and dollar amount of your loan. This step does not impact your credit history.
  • Finalize the loan: If you choose to accept the terms of the loan, you’ll need to provide more information, including data to verify your employment. Borrowers pay an origination fee when the loan is closed, and the fee is added to the balance of your loan.
  • Loan payments: You make monthly payments through the P2P platform, and each payment includes principal and interest.

If you want to invest through a P2P platform, follow these steps:

  • Apply: In most cases, investors in P2P platforms must meet the requirements to be accredited investors. The P2P platform will ask about your net worth, annual income, and investment experience before you’re allowed to invest.
  • Invest: Investors deposit funds and purchase notes, which include a portion of a number of individual loans. You can choose the types of loans you prefer, based on the projection interest rate paid and the credit risk of the borrowers. 
  • Diversify your portfolio: Loans that are rated as a higher credit risk pay higher interest rates to investors. To reduce the risk of an individual borrower defaulting on a loan, you can spread your investment dollars among dozens (or hundreds) of individual loans. 
  • Withdraw funds to reinvest: As you earn interest, you can choose to reinvest your earnings in more loans, or withdraw funds.

This form of lending provides an alternative to traditional bank loans, and offers a competitive rate of return to investors. With peer-to-peer (P2P) lending, borrowers are connected with lenders through an online marketplace, with the P2P company serving as a facilitator. P2P firms earn loan origination and servicing fees.

The borrower doesn’t have to go through a lengthy loan approval process. Instead, the application process is simplified, and decisions are made quickly. The investor earns a return, based on a share of the interest rate charged to the borrower.

Companies such as Upstart and Funding Circle facilitate personal and business loans. PriceWaterhouseCoopers estimates that the market could reach $150 billion or higher by 2025.

These are unsecured loans, and there is a risk of default by a borrower. Fortunately, you can spread your risk by investing a small dollar amount in a number of different loans. Both the SEC and state entities regulate P2P lenders.

To start investing, the investor opens an account on a P2P website and deposits funds. These funds then get dispersed out to a number of borrowers determined by the investor and the platform.

What to Expect as an Investor + Pros and Cons

Both individual investors and institutions loan funds to P2P borrowers. Finder explains that the institutional investors, such as hedge funds, are now providing a large amount of funding to P2P firms. These institutions are seeking higher rates of returns than they can earn on traditional investments.

The risk of loan default is the primary concern for P2P investors. Investopedia reports that Zopa had a default rate of 4.52% for loans granted in 2017, according to the Financial Times.

The P2P platforms discussed below each report on their default rates, and you’ll find average default rates of 2% to 8%. For example, Upstart’s default rate is between 4% and 9%.

Here are the pros and cons of investing in P2P loans:

Pros

  • P2P investors earn better than average rates of return
  • Investors help real people overcome financial obstacles

Cons

  • P2P investing presents a higher level of risk than bank deposit or savings account, due to the risk of loan default
  • A growing percentage of P2P investors are institutions, leaving less options for retail investors who want to invest in P2P

Borrowers may want a loan for business purposes, or for personal reasons. Many consumers borrow funds to pay off higher interest rate credit cards, to finance a home improvement project, or to buy a car. How does the process work?

What to Expect as a Borrower + Pros and Cons

Borrowers with a high credit rating can expect to pay interest rates below 10%, while higher risk borrowers may pay 20% to 30% annual interest rates. Dozens of individual investors may purchase a portion of your loan. 

Once approved, you can get your P2P funds within a week. You’ll make payments through the P2P platform monthly, and your payments include interest and repayment of principal.

Here are the pros and cons of borrowing on P2P platforms

Pros

  • Borrowers with lower credit scores can find access to credit 
  • Once approved, you can receive funds within a week 

Cons 

  • The interest rate charged may be much higher than rates charged for a bank loan, or on credit cards balances

Here are the best P2P lending platforms, and details about each company’s lending practices.

Best Peer to Peer Lending Platforms

All of the platforms are required to quote loan interest rates based on the annual percentage rate, or APR. Investopedia defines APR as the actual yearly cost of funds over the term of a loan. The rate also calculates the amount of principal you’ll repay each year. 

APR includes both the interest on the loan, and the loan origination fee costs. Note however, that APR does not take interest compounding into account. 

Here are some of the larger P2P platforms used by investors and borrowers.

Lending Club Overview

The LendingClub has issued over $50 billion in loans to over 3 million customers.

The firm offers fixed interest rate personal loans of up to $40,000, and collateral is usually not required. Borrowers can get a loan decision and funds in as little as four days, and there is not a penalty for loan prepayment.

Borrower details

LendingClub’s current loan rates range from 10.68% to 39.89% APR.  Borrowers are charged a one-time loan origination fee of 2% to 6%, based on the individual’s credit score, and the fee is deducted from the loan proceeds. If the borrower receives a loan offer, he or she is given the choice of a 36-month or 60-month loan.

Once the loan is in place, the borrower must make payments on time. If a payment is more than 15 days late, the borrower is charged 5% of the unpaid payment amount or $15, whichever is larger. Late payments sharply increase the cost of the loan.

Investor details

Investors can start an account with a minimum of $1,000. Investors purchase notes, and notes are securities that correspond to fractions of loans. Here are some facts regarding notes, which apply to most P2P platforms:

  • Notes are considered investment securities that are registered with the SEC. 
  • Each note is graded, based on the credit risk of the loans in the note, and interest rate charged on the note’s loans.
  • The company recommends that investors purchase a diversified portfolio of notes to reduce investment risk. LendingClub states that 99% of investors with more than 100 notes have earned positive returns on their investments.

Notes mature in three to five years and are repaid monthly by borrowers. As principal and interest is repaid on the loans, you can reinvest using an automated allocation process, or use a manual system to reinvest. You can set the automated system to reinvest in notes based on credit risk, and interest rate criteria that you choose.

Upstart offers some unique features to P2P investors.

Upstart Overview

Upstart has originated more than $6.7 billion in consumer loans since launching in May 2014, and the company has a unique process for determining a borrower’s default risk:

“Our proprietary underwriting model goes beyond FICO scores — it identifies high-quality borrowers based on signals of their potential, even if they have limited credit and/or employment experience. We call these consumers ‘future prime’ borrowers.”

Borrower Details

In addition to credit history, Upstart uses the borrower’s education and job history as factors when making a loan decision. When you initially apply for a loan, the application will not impact your credit score. Here’s an explanation of the credit reporting policy:

“When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information will be reported to the credit bureaus.”

You can borrow from $5,000 to $30,000, and interest rates vary from 6.18% to 35.99%. You can choose a 3 or 5-year term for a loan. Currently, the average 3-year loan on the Upstart platform charges a 22% interest rate.

If the borrower accepts a loan by 5pm ET (not including weekends or holidays), he or she will receive the funds the next business day. For loans that are being used for education-related purposes, there is an additional 3-business day period between loan acceptance and when the individual receives the funds.

There is no prepayment penalty on Upstart loans. 

Investor details

Upstart funds loans using assets from financial institutions and wealthy individuals, which the firm refers to as partners. Upstart promotes its use of AI to improve the lending process for partners:

“Upstart offers a complete range of AI solutions for optimizing consumer lending. With smarter decisions, you can say yes to more borrowers and improve your portfolio performance.”

An Upstart study used the loan underwriting process of three banks, and evaluated the approval rates and loan loss rates using Upstart’s borrowers (as of 12/31/17).

Upstart’s study indicated that the firm had 173 percent more approvals with the same default rate when compared to big banks. The company also noted 75 percent fewer defaults with the same approval rate as big banks, based on how they qualify borrowers.

About 88% of Upstart loans are either current or paid in full.

FundRise Overview

FundRise markets itself as the first simple, low-cost real estate investment platform. Investors purchase a portfolio that invests in dozens of real estate projects, and the fund reports 8.7% to 12.4% historical annual returns. 

Many investors have portfolios in stock and bond investments, but not in real estate. By adding real estate to the portfolio, investors add diversification. This strategy spreads the investment risk over three types of investments, rather than two.

There are downsides to investing in real estate, however. Selling real estate requires appraisals and other legal work, and the process can take months. For this reason, real estate is considered an illiquid investment (an investment that cannot be sold quickly).

Conversely, stocks and bonds are liquid, because they trade on exchanges that are open each business day.

This firm invests in private market real estate. FundRise explains here that investment portfolios with at least 20% of the assets in real estate have outperformed portfolios that only invest in stocks and bonds.

Commercial real estate produces investor returns from rent and lease payments, and through the price appreciation of the real estate. You can choose an investment plan that focuses on steady rental and lease income, or a plan that focuses on price appreciation.

You can open an account for a minimum of $500.

Funding Circle Overview

Funding Circle focuses on the small business market. The company offers Small Business Administration (SBA) loans, including SBA 7(a) loans to provide capital to small businesses. The firm has helped over 81,000 small businesses obtain $11.7 billion in financing.

Funding Circle emphasizes that small businesses should be protected from unfair, deceptive financial practices. The firm co-wrote the first standard for the small business lending market, The Small Business Borrower’s Bill of Rights. Funding Circle is also a founding member of the Marketplace Lending Association, which was created to protect borrowers.

Borrower Details

SBA 7(a) loans allow small businesses to borrow anywhere from $25,000 to $500,000, and the interest rate is currently 6%. The loan term can be up to 10 years, and there is no prepayment penalty.

Funding Circle works with Preferred SBA Lenders, which are firms that offer in–house approvals and accelerated processing. These lenders give business owners fast answers and even faster closings.

Small businesses who meet the below criteria are eligible to apply for an SBA 7(a) loan:

  • In business for more than 3 years
  • At least $400,000 in annual revenue
  • No federal tax liens
  • 680 FICO for personal guarantor (Business owner’s personal guarantee)
  • Positive book value (company assets are greater than liabilities)

How to apply for an SBA 7(a) loan:

  1. Start your application online in 6 minutes by answering a few questions about you and your business. Applying will not impact your firm’s credit score
  2. Receive a call from your dedicated Account Manager who will get to know your business and discuss your needs in order to help you complete your application
  3. Submit applications to SBA preferred lender partners. 
  4. Review and approve your Proposal Letter outlining the terms of your unique loan
  5. Collect remaining documents and submit complete loan package for final underwriting
  6. Sign your formal loan agreement

When you apply for the loan, you must provide three year of business financial statements and tax returns. Any owner who is guaranteeing the loan must also allow the lender to pull their credit history, and provide three years of personal tax returns.

Small business borrowers pay these fees:

  • SBA Loan Guarantee Fee – 1.7% for loans up to $150k and 2.25% for loans greater than $150k
  • Broker / Agent fee – Origination fee paid to the lender
  • Closing Costs – Costs associated with underwriting expenses such as background checks, placing liens, credit pulls

Over 100,000 global investors have used Funding Circle’s loan marketplace, including individuals, national banks, and governments.

Investor details

Individuals can invest in American small businesses through the purchase of notes issued by Funding Circle. Small businesses receive the funds they need to grow, and investors can earn attractive returns through the borrower’s monthly installment repayments.

Here are some other features:

  • Investors use their online account to easily lend to hundreds of businesses looking to borrow.
  • Funding Circle reviews applications and approves creditworthy businesses. The company then pays out their loans and process repayments for investors.
  • Businesses make fixed monthly repayments with interest, which Funding Circle distributes to all the investors who lent to them.

Funding Circle investors have earned historical annual returns of 5% to 7%. Historical annual returns are calculated as the sum of interest paid, minus the 1% servicing fee and defaults, plus recoveries, relative to the principal amount. 

How to invest:

  • Sign up for an account, and Funding Circle will verify your status as an accredited investor. Investopedia explains the requirements to be an accredited investor. Generally speaking, these investors have higher annual income, net worth, and more investment knowledge than other investors.
  • Invest a minimum of $25,000 into fractional notes, which represent a portion of a small business loan. You can automate the investing process, or choose notes manually. You can invest as little as $500 in a specific fractional note.
  • Monitor the monthly repayment of loans online. You can reinvest your earnings automatically or manually.

You are charged a 1% fee on loan repayments, and there are no other fees charged to investors.

StreetShares Overview

StreetShares provides secured and unsecured loans to businesses.

Borrower details

Secured loans require collateral. Business owners can secure the loan with personal property (real estate, vehicles), or by using business inventory, equipment, or accounts receivable balances. 

Owners can also apply for unsecured loans, which do not require collateral. StreetShares provides unsecured lines of credit that businesses use for short-term financing. 

The company also focuses on business loans for veterans. These owners may have gaps in their financial history, due to military service. Veteran small business loans are often easier to qualify for, and can offer better rates and terms than traditional small business loans. 

To apply, owners provide company bank statements, tax forms, and credit reports. The lender will also need time to secure the collateral and appraise the assets, if necessary.

Investor details

Investors can purchase Veteran Business Bonds, which currently pay a 5% interest rate. StreetShares has used the proceeds from bond sales to originate $100 million in loans. 

The bonds have a 3-year term, and investors must pay a 1% fee on any funds withdrawn before the end of the term. Investors can open an account with as little as $25. You can download an offering summary that explains the investment details here.

Peerform Overview

Peerform offers unsecured loans with rates from 5.99% to 29.99% APR. You can apply online, and the application will not impact your credit score. 

Borrower details

Loan amounts range from $4,000 to $25,000, and Cross River Bank originates the loans. The interest rate you are charged depends on your credit ranking, which is your Peerform grade. Borrowers pay a loan origination fee of 1% to 5%, based on the Peerform grade.

There is no prepayment penalty on your loan.

Investor details

Accredited investors can invest in Peerform loans. Peerform uses an algorithm to analyze the risk of loans and to determine the loan interest rates. Currently, the firm provides investing access to institutional investors purchasing whole loans.

Cross River Bank underwrites loans based on specific loan criteria, including:

  • Minimum FICO credit score of 600
  • Borrower debt-to-income ratio below 40%
  • A credit profile with no current delinquencies

Peerform uses a number of other factors to grade each loan, and the grade helps to determine the loan’s interest rate.

Prosper Overview

Prosper has provided $17 billion in loans to 1 million customers.

Borrower details

Just as with other P2P firms, Prosper provides loans with 3 or 5-year terms, and there is no prepayment penalty. Eligible consumers can borrow up to $40,000.

Origination fees vary between 2.41%-5%, and interest rate APRs through Prosper range from 7.95% to 35.99%, with the lowest rates for borrowers that have the best credit evaluations. Checking the interest rate available on a loan does not affect your credit score.

Investor details

Investing in Prosper requires you to meet suitability requirements. Investors must document their gross income, net worth, and investment experience, because P2P investing is more complex and carries more risk than traditional investments. Suitability requirements vary by state.

Prosper provides investors loan ratings from AA (lower risk, lower return) to HR (higher risk, higher return). Annual investment performance has ranged from 3.4% to 8.3%, and the historical return averages 5.1%.

Investors can search Prosper loans based on credit rating, dollar amount borrowed, interest rate charged (yield), and percentage of the total loan funded by investors. The minimum investment amount is $25.

Kiva Overview

Kiva is an international nonprofit, founded in 2005 and based in San Francisco, with a mission of expanding financial access to help underserved communities thrive. More than 1.7 billion people around the world are unbanked and can’t access the financial services they need, and Kiva exists to address that problem. 

The firm has worked with over 1.9 million lenders who have financially supported 3.6 million borrowers in 76 countries. A Kiva loan may fund a student’s tuition, help a woman start a business, or allow a farmer to invest in equipment. Kiva does not pay investors a rate of return, and you should view Kiva investing as a donation that a borrower will pay back without interest.

100% of funds lent on Kiva go to funding loans, which are referred to as Monthly Good support. Optional donations fund Kiva’s operations.

Investor details

You can start with Kiva by signing up for a monthly funding amount. Here are some other details that explain the lending process:

  • Kiva lends 100% of your funds to a borrower who needs financing to reach his or her goal. The borrower might be a farmer, student, artisan, or shopkeeper. 
  • Kiva updates the investor monthly to explain who the borrower is, and how they are using the funds to overcome a particular problem.
  • As the borrower repays funds, you can set up your account to automatically reinvest the proceeds into a new loan.
  • If you choose to stop monthly contributions, you can have Kiva continue to loan the balance in your account, or you can withdraw your funds.

Kiva reports that 96.7% of loans have been repaid.

Borrower details

In a Partner Loan, Kiva works with local nonprofits or lending institutions, which approve the borrower’s request. Kiva performs due diligence on the borrower’s application, and monitors the repayment status of the loan.

A Direct Loan is approved through “social underwriting”. Friends or family members determine the trustworthiness of the borrower, because they lend a portion of the loan dollars requested. In other cases, a Kiva-approved Trustee will confirm the trustworthiness of the borrower.

Once either type of loan is approved, investors fund the loan through the Kiva website.

Advantages, Drawbacks and Controversy of Peer to Peer lending

Investors and borrowers must fully understand P2P lending before opening an account on any P2P platform.

Investor risks

P2P platforms do not have the same financial controls in place as traditional lenders, and this increases risks for investors.

Bloomberg points out that the industry lacks the sorts of collateral and loan reserves that get traditional banks through tough times. A bank will require collateral (home, car) before originating loans to most individuals. Bank regulators also require banks to set funds aside to cover potential losses on loan defaults. 

P2P firms may not have these controls in place to reduce default risk. In a slowing economy (particularly during the coronavirus pandemic), borrowers may lose their jobs or see revenue declines in their businesses. These borrowers may fall behind on loan payments, or default.

P2P loans are, for the most part, unsecured. If a large number of unsecured loans default, P2P investors will incur large losses. There is no collateral for the lender to sell, and the P2P firm is not required to set up reserves to pay investors for losses.

Borrower risks

Interest rates charged on P2P loans may be much higher than rates charged by traditional lenders, and higher rates make it more difficult to repay the loan over time.

High interest rates mean that the monthly repayment amount will be higher. In an economic downturn, a borrower on a limited income will find it more difficult to repay a loan. The risk of default is higher, and a default has a big impact on the borrower’s credit rating.

Is Peer to Peer Lending Safe?

P2P investors and borrowers are exposed to higher levels of risk, when compared with traditional investments.

Bank checking accounts and certificates of deposit (CDs) offer Federal Deposit Insurance Corporation (FDIC) insurance to protect investors from losses. Financial institutions are also required to reserve funds, which are used to cover the cost of loan losses. P2P firms do not have this requirement.

While the historic risk of P2P defaults listed above are fairly low, the current economic downturn may sharply increase default rates. P2P investors and borrowers face higher risks today than in past years.

Investors must understand that the FDIC does not provide insurance for P2P loans. The investment may lose value, and past investment performance is not an indication of future returns.

Final Thoughts

P2P investing may be suitable for experienced investors with a high net worth.

If an individual invests a small portion of their investment dollars into a P2P lending platform, they are able to diversify a portfolio that is invested only in stocks and bonds. High net worth can afford short-term losses in a P2P investment, and experienced investors have the sophistication to understand the risks and potential returns.

Investors who are less experienced should consult with a financial professional before investing in P2P platforms.

P2P borrowers must understand how higher interest rates make it more difficult to repay a P2P loan. While P2P platforms lend to borrowers who can’t get loans through traditional banks, loan repayment can be a challenge. Borrowers should carefully consider the total cost of borrowing before signing a P2P loan agreement.