Posted by Maneesh Sethi :: August 31, 2007 @ 10:57 amWhen you get your paycheck, why should you invest it at all? Why not just leave it in your savings account?
The major problem is interest rates. Normal banks give horrible interest rates in the neighborhood of well under .5%. With inflation at over 3% annually, your savings account is actually losing you 2.5% of your money each year! Of course, no one wants to lose money.
Lending Club helps you put that money to use by letting you lend the money you aren't using to someone else. People who need loans can grab money from you and will pay you back at a higher interest rate. The interest rates you can get range from 7% to just under 12%. For the money you have that's just sitting around, wouldn't you rather make a profit than a loss?
A simple compound interest calculator can easily demonstrate the differences. Investing $1,000 for 4 years at .5% will make you $20 in 4 years. That's almost nothing! But what if you invest at 7%? You'll make $310.80. That's over 15 times the gains from your savings account! Leaving your liquid money in a savings account is almost the same as just stuffing your money under your mattress.
Regardless of how you choose to invest, you can be strongly assured that lending your money to borrowers on Lending Club will net you much more money than your savings account. Don't waste the opportunity: invest.
3 Comments
Isn't this slightly misrepresenting Lending Club? LC accounts have nearly zero liquidity.
I'm a happy Lending Club lender but I wouldn't put my "dog might need an operation" money in it.
Hey Luke,
I was trying to emphasize that Lending Club is for lending out money you don't need. I said
"Lending Club helps you put that money to use by letting you lend the money you aren’t using to someone else."
The money you aren't using, meaning that you don't need in the future. The liquidity difference does exist, but the point still stands---if you have money you don't need to use, you should invest it instead of leaving it in a savings account.
Thanks for commenting!
-M
Also noteworthy--and well publicized by Lending Club though not in this blog entry--is that Lending Club investments are NOT FDIC guaranteed, unlike savings accounts. Therefore, I would also note that it is not only important to consider whether "you don't need to use" it currently but whether you absolutely NEED it at all. This is not anti-Lending Club but, rather, pro-diversification.
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