Investments

What Is Worthy Bond

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 5 minute read

The confidence of Americans in making impact investments is growing. Following nearly a decade of rapid expansion, 2021 saw a dramatic increase in investments into SRI and ESG funds and strategies. Many professionally managed portfolios in the United States now use SRI principles.

And it’s not just the wealthy who can afford to hire a money manager. DIY investors with modest budgets can choose from a wide range of SRI investment vehicles, including stocks, ETFs, mutual funds, and even bonds.

Among these choices, Worthy Bonds is one of the most intriguing. In other words, it facilitates the purchase of “socially responsible bonds,” as the name implies. Worthy Bonds is an excellent option to diversify your SRI portfolio.

What Is Worthy Bonds: About

Worthy Bonds is a specialized platform that exclusively sells one product, a 36-month coupon bond in $10 increments. Worthy Financial is the company’s parent. Not large corporations or national coffers, but rather local companies and organizations stand to gain from the sale of bonds. Similar to traditional peer-to-peer lending, but without the high-interest private loans.

Worthy Bonds will likely always play a supporting role in your portfolio rather than a leading one because of its low diversification and strict purchasing limitations. Despite the lack of FDIC insurance for Worthy accounts, the absence of platform costs, the absence of penalties for early withdrawal, and the flat rate of return of 5% make Worthy Bonds an attractive alternative to short- and medium-term savings products such as certificates of deposit (CDs).

Curios about the future of Worthy Bonds? Find out why it’s a good option for everyday people to buy bonds and learn about its features, benefits, and downsides.

Characteristics of Valuable Bonds

There are a few aspects of the Worthy Bonds platform and the different fixed-income products that you should be aware of before making any investments.

Valuable Bonds

Individuals can invest as little as $10 in Worthy Bonds, which are bonds registered with the Securities and Exchange Commission (SEC) and sold to the public. The profits from the issuance of bonds are invested by Worthy in asset-backed (secured) small company loans.

These loans are used by Worthy’s corporate borrowers to make relatively short-term investments, such as funding inventory purchases, and are repaid with interest over the course of 36 months. Worthy does not reveal the interest rates it charges its company borrowers, but all of its bonds pay out a uniform coupon rate of 5% each year to its similar investors.

Investors in bonds don’t stand much of a chance of losing money because they’re all backed by real property. Worthy cautions, nevertheless, that failures do occur, and that investors have fewer options when there is no FDIC insurance.

You won’t have to worry about any hidden costs or fees with Worthy Bonds. Similar to other types of banks, Worthy profits on the rate differential between the interest rates it charges businesses and the rates it pays out to individual bondholders.

Worthy Peer Capital, Worthy Peer Capital II, and Worthy Community Bonds are just a few of the subsidiaries that issue Worthy Bonds. The prospectus for a bond will provide details on the bond’s issuer.

Purchase Limitations

Online bond purchases from Worthy Bonds are capped at $50,000 (5,000 bonds) for qualified investors and 10% of yearly income or net worth, whichever is larger, for non-accredited investors. Accredited investors are those who meet the SEC’s criteria, which include:

  • Individuals who earned at least $200,000 in yearly income in the previous two tax years and predict comparable or higher profits in the following year.
  • Couples who earned at least $300,000 in the previous two tax years and forecast comparable or higher future earnings
  • Individuals or couples having a net worth of more than a million dollars

Instead of purchasing bonds through the web portal, accredited investors can circumvent the purchase restriction by purchasing bonds directly from Worthy Bonds. Whether or whether there are limits on the total amount that investors can buy this way is unclear.

Account Types

For individuals, families, and authorized representatives, Worthy Bonds provides a number of account options, including the following:

  • taxable assets (interest is taxable as ordinary income)
  • deductible retirement accounts (traditional, Roth, and rollover IRAs)
    Trusts

For businesses, Worthy Bonds provides two distinct account options:

  • Accounts for investors who seek to invest through non-profit organizations.
  • Accounts for investors who seek to invest via for-profit organizations

Bond Purchases: Manual and Scheduled

You may manually buy bonds in any quantity after creating a Worthy Bonds account and linking an external funding account (a bank account, debit card, or credit card) (subject to total purchase limits). Bonds can be automatically purchased on a weekly, bimonthly, or monthly basis in predetermined quantities.

Investing on Autopilot

If you’d like, your connected funding account can be set up to automatically buy Worthy Bonds using the spare change from rounded-up purchases.

It’s always rounded up to the nearest dollar, so if you spend $3.50, you’ll get an extra $0.50 in your account. As soon as the amount in your Worthy Bonds account hits $10, you will be prompted to buy a new bond using the money transfer app Dwolla.

Withdrawal of Cash and Interest

There are no penalties for cashing out your Worthy Bonds early, and you can withdraw both interest and principal at any point during the 36-month term. Smaller interest-only withdrawals often execute quickly, but larger withdrawals may take several weeks to process.

Deserving Causes

For charitable giving, Worthy Causes utilizes the round-up functionality of Worthy Bonds. Using Worthy Causes, you may buy bonds in $10 increments with the spare change from your linked external account.

Afterwards, you may give those bonds to the charity of your choosing, which will earn 5% interest each year and have full access to their funds. If you itemize your federal and state tax returns, bond donations to a nonprofit that meets certain requirements may be tax deductible.

Referral Program

Both the referrer and the person being referred will get a $10 bond from Worthy Bonds for every successful referral. Each referral is worth $10 plus interest accrued over 36 months at 5% annually when the bond is held to maturity.

Partner Recognition

Worthy intends to launch a comprehensive loyalty program offering investors exclusive benefits from carefully chosen partners. Even though no formal contracts have been signed, it seems probable that we will see an official launch of Worthy in the near future, as certain potential partners are rather well-known.

Bottom Line

Rather than giving money to large businesses or governments that don’t need it, Worthy Bonds helps small company owners that need working capital.

If you’re looking for a safe place to park your short- and medium-term savings, Worthy Bonds offers competitive interest rates that are likely to be higher than what you’d earn at a traditional or online bank. However, you should be aware of the risks associated with bond investments and the consequences of having no FDIC insurance before making any investments.

In sum, Worthy Bonds is an entertaining small niche product that offers significant passive income potential for investors looking to spread their wings. The platform’s future growth and potential role as a template for additional ethical fixed-income options will be fascinating to see.

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