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Lending Club Review

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At a time when investors are making record low interest rates of little more than 1-2%, there is an opportunity to earn much higher returns through peer-to-peer investing with Lending Club.

And for would-be borrowers, the news is almost as good. They can borrow money from Lending Club investors at rates generally below those offered by credit cards. They can do so without putting up collateral and without all the red tape that comes along with borrowing from a bank.

Note: A few years back Matt used Lending Club to consolidate his debt and has been investing with them ever since paying off that loan. Over the last three years he has averaged an interest rate of over 10% on his investments with Lending Club.

What is Lending Club

Lending Club is a “peer-to-peer” lending company, matching borrowers directly with lenders.

The model removes banks from the process, enabling the borrower to pay a lower interest rate, and the investor to earn a higher rate of return. The company is the first peer-to-peer lending organization to be registered with the Securities Exchange Commission.

The company began operations in 2007 and has originated over $1 billion in loans.

According the company’s website, the latest statistics–as of November 23, 2012–include:

  • Loans funded to date: $1,348,306,700
  • Interest paid to investors since inception: $114,375,168

77.32% of Lending Club borrowers report using their loans to consolidate debt or pay off their credit cards. Can I get an Amen?

How does Lending Club work

Both investors and borrowers can go to the Lending Club website, sign up and investigate the loan programs available, including loan requirements and grades, interest rates, terms and any other factors connected with the transaction.

Loans sizes range from $1,000 to $35,000 (the maximum loan amount), and are unsecured, personal loans. If a borrower is determined to be credit worthy, Lending Club assigns them a credit grade that determines the interest rate charged. Credit grades are determined by the borrower’s credit characteristics, including credit history and credit scores, loan amount and debt-to-income ratios.

Loan (or note) listings are provided on the Lending Club website that reveal the loan grade, loan amount, and loan purpose. Investors can choose loans to invest in from the listings, deciding, for example, what loan grades and interest rate terms they deem acceptable – then they can save the filters and use them later to find and fund more notes.

How investors benefit from Lending Club

According to the site, Lending Club has over 45,000 investors who have funded more than $1 billion in loans. And they have collected over $114 million in interest payments.

Lending Club Notes ($20,000 denominations) have a net annualized return that is determined by loan grade. For an A note, the net annualized return is 5.66%, ranging up to a G note with a return of 12.07%. The nominal average interest rate is 14.21%, with an average default rate 4%, and an average net annualized return of 9.64% (Matt is currently earning at 10.23%).

Lending Club itself makes money by charging a service fee to investors and a loan origination fee to borrowers, similar to points charged by a mortgage lender.

Investors start by opening a account with Lending Club and depositing their money. They then choose the loans they want, based on the expected rate of return on investment and the level of risk they’re comfortable with. Higher rate loans also carry higher risk, while lower risk loans offer lower interest rates.

How Borrowers benefit from Lending Club

Borrowers can borrow money through Lending Club for less than they’ll pay for most other loans. Since there’s no “middle man” in the Lending Club process, they can see a loan approval in less time and with much less documentation. Borrowers can get debt consolidation loans to pay off credit cards charging, say, 15% with a loan from Lending Club carrying a rate well under 10%.

Which is exactly what Matt did. He consolidated three credit cards and an auto loan, then paid it off in seven months.

Lending Club isn’t a “no other way” lender, and there are some stipulations that keep loans primarily to higher quality borrowers. According to the website, fewer than 10% of loan applications are approved. The credit standards are pretty stiff, with a minimum credit score of 660.

This is because Lending Club likes to deal with borrowers who are going to pay off the loans. Makes sense right?

Some statistics on the profile of the average borrower from the site:

  • 715 FICO score
  • 14.98% debt-to-income ratio (excluding mortgage)
  • 15.21 years of credit history
  • 68,831 personal income (top 10% of US population)
  • Average Loan Size: $12,159

Even with the high credit standards required by the program, Lending Club offers tangible advantages for borrowers who do qualify.

As mentioned above, 77.32% of Lending Club borrowers report using their loans to consolidate debt or pay off their credit cards. How cool is that?

Betterment Review

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The past few years have seen the rise of a number of specialized, online investment management services. One of the better programs out there is Betterment.

Betterment describes itself as “The fully diversified, automated, and smart investment account that helps you feel good about your future.” It offers a simple, efficient investment system that will appeal to a large number of investors.

How Betterment Works

Betterment uses a simple investment strategy that’s based on two investment options, referred to as baskets. One basket is made up of stocks and the other of treasury bonds. But rather than holding individual stocks, each basket is comprised entirely of a mix of exchange traded funds (ETF’s).

As an investor, all you need to do is set your portfolio allocation and the system handles your investing for you.

Unlike many online investing services, Betterment does not require a minimum opening account balance. If you open your account with less than $10,000 however, you will be required to make monthly deposits of at least $100 until the balance is achieved. Once you reach the $10,000 mark, continued monthly contributions are optional.

You can move money easily and automatically between your Betterment account and any outside accounts you have with next day transfers. The system also allows you to do investment projections online simply by changing asset allocations and projected contributions.

One of the coolest parts is that you can “try before you buy” so-to-speak by running savings goal scenarios before actually committing the money to those investment mixes.

Betterment will also give you $25 if you open and account with at least $250.

Betterment Pricing

In regard to investment fees, Betterment has no transaction fees, but charges a management fee based on portfolio size. There are three pricing tiers that determine the amount of the management fee:

  1. for accounts under $10,000 the annual percentage charged is .35% of the balance,
  2. for accounts of $10,000 and up to $100,000, the fee is .25% of the balance,
  3. for balances of $100,000 and higher the annual fee is .15% of the balance.

If your account balance is $100,000, your annual account management fee will be .15% of the balance, or $150.

This makes betterment one of the lower cost investment systems around, especially on accounts with higher balances.

Betterment Advantages

Pricing is an obvious advantage with Betterment. To be able to maintain $100,000 of managed investments for just $150 per year would be difficult to duplicate elsewhere.

Simplicity is another advantage. You can set your portfolio allocation between stocks and bonds and management will take it from there. You don’t need to actively trade, to follow your investment positions on a daily basis or to make changes.

Betterment also has professional management which saves you the time and effort that will take to become a successful investor. And rather than investing in stocks, management invests instead in ETF’s. That not only keeps trading expenses at a minimum, but it also achieves significant diversification within each asset class.

Management’s investment philosophy also seems very solid. The bond basket is invested in ETF’s that hold Treasury Inflation Protected Securities (TIPS) with maturities of three years or less. That minimizes interest rate risk that is inherent with longer-term bonds. This makes Betterment’s bond positions more secure than typical bond funds

The stock position is held in ETF’s that invest in value funds and small-cap funds. At this time the entire stock portion is held in US based stocks. Betterment holds the stock position in several ETF’s that are determined by management to best achieve the program’s investment goals for its equity positions.

Like many of the online investment systems available, your holdings in the account will be limited to Betterment’s baskets. You will not be able to hold individual stocks, mutual funds, or ETF’s as you would in a typical online brokerage account. Betterment is, after all, a managed investment account, and not a general investment account. This is how they keep it simple for you, the investor.

On balance, Betterment looks to be a good investment choice for most investors, particularly for those who are looking for aggressive equity investments, counterbalanced by conservative bond investments. And the cost and simplicity will be hard to beat anywhere.

You can get more information on how Betterment works, and take advantage of a free 30 day trial offer and the $25 bonus by visiting the Betterment website.

Traditional and Roth IRA Contribution Limits and Deadlines

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Continually updated contribution limits for Traditional IRA and Roth IRA including tax years 2008, 2009, 2010, and 2011.

After discovering your contribution limits and deadlines I recommend filing your taxes with TurboTax Online – that’s what I do and I’m a small business owner.

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Follow this link for information on SEP IRA contribution limits.

2011 IRA Contribution Limits

According to the IRS, maximum IRA contributions for 2010 are the same for both a Traditional IRA and Roth IRA.  You can also split your contributions among both Roth and Traditional, but your combined contribution amounts are subject to these same limits. The limits do not apply to rollover contributions.

Under 50 years old at the end of 2011:

  • Traditional IRA contribution limits = $5,000
  • Roth IRA contribution limits = $5,000
  • Combined IRA contribution limits = $5,000

Over 50 years old as the end of 2011:

  • Traditional IRA contribution limits = $6,000
  • Roth IRA contribution limits = $6,000
  • Combined IRA contribution limits = $6,000

The limits as they pertain to you are always the smaller of the numbers given or your taxable compensation.  In other words your IRA contribution limits will be the numbers given below unless your 2011 taxable compensation was less than the number given under each circumstance.

Modified AGI rules for 2011

The IRS also says that your IRA contribution limits may be reduced depending upon your modified adjusted gross income (modified AGI).

For 2011 Roth IRA contributions this MAGI phase out range is $110,000 – $125,000 for single filers and $173,000 – $183,000 for married filing jointly.  Basically if your income falls under these amounts your IRA contribution limits will be reduced accordingly.

For 2011 Traditional IRA contributions your MAGI affects your limits on tax deductibility according to you or your spouses participation in employer retirement plans.

  • If neither you nor your spouse participate in an employer retirement plan your contributions are fully tax deductible.
  • If you participate in an employer retirement plan the MAGI phase out range is $58,000 – $68,000 for single filers and $92,000 – $112,000 for married filing jointly.
  • If only your spouse is in an employer retirement plan the MAGI phase out range is $173,000 – $183,000 for married filing jointly.

2011 IRA Contribution Deadlines are April 17th, 2012.

I recommend filing your taxes with TurboTax Online and highly recommend using either Lending Club or Betterment to house your IRA.

2010 IRA Contribution Limits

According to the IRS, maximum IRA contributions for 2010 are the same for both a Traditional IRA and Roth IRA.  You can also split your contributions among both Roth and Traditional, but your combined contribution amounts are subject to these same limits. The limits do not apply to rollover contributions.

Under 50 years old at the end of 2010:

  • Traditional IRA contribution limits = $5,000
  • Roth IRA contribution limits = $5,000
  • Combined IRA contribution limits = $5,000

Over 50 years old as the end of 2010:

  • Traditional IRA contribution limits = $6,000
  • Roth IRA contribution limits = $6,000
  • Combined IRA contribution limits = $6,000

The limits as they pertain to you are always the smaller of the numbers given or your taxable compensation.  In other words your IRA contribution limits will be the numbers given below unless your 2010 taxable compensation was less than the number given under each circumstance.

Modified AGI rules for 2010

The IRS also says that your IRA contribution limits may be reduced depending upon your modified adjusted gross income (modified AGI).

For 2010 Roth IRA contributions this MAGI phase out range is $107,000 – $122,000 for single filers and $169,000 – $179,000 for married filing jointly.  Basically if your income falls under these amounts your IRA contribution limits will be reduced accordingly.

For 2010 Traditional IRA contributions your MAGI affects your limits on tax deductibility according to you or your spouses participation in employer retirement plans.

  • If neither you nor your spouse participate in an employer retirement plan your contributions are fully tax deductible.
  • If you participate in an employer retirement plan the MAGI phase out range is $56,000 – $66,000 for single filers and $90,000 – $110,000 for married filing jointly.
  • If only your spouse is in an employer retirement plan the MAGI phase out range is $169,000 – $179,000 for married filing jointly.

2010 IRA Contribution Deadlines are April 18th, 2011.

IRA Contribution Limits for 2009

According to the IRS, maximum IRA contributions for 2009 are the same for both a Traditional IRA and Roth IRA.  You can also split your contributions among both Roth and Traditional, but your combined contribution amounts are subject to these same limits. The limits do not apply to rollover contributions.

Under 50 years old at the end of 2009:

  • Traditional IRA contribution limits = $5,000
  • Roth IRA contribution limits = $5,000
  • Combined IRA contribution limits = $5,000

Over 50 years old as the end of 2009:

  • Traditional IRA contribution limits = $6,000
  • Roth IRA contribution limits = $6,000
  • Combined IRA contribution limits = $6,000

The limits as they pertain to you are always the smaller of the numbers given or your taxable compensation.  In other words your IRA contribution limits will be the numbers given below unless your 2009 taxable compensation was less than the number given under each circumstance.

Modified AGI rules for 2009

The IRS also says that your IRA contribution limits may be reduced depending upon your modified adjusted gross income (modified AGI).

For 2009 Roth IRA contributions this MAGI phase out range is $105,000 – $120,000 for single filers and $167,000 – $177,000 for married filing jointly.  Basically if your income falls under these amounts your IRA contribution limits will be reduced accordingly.

For 2009 Traditional IRA contributions your MAGI affects your limits on tax deductibility according to you or your spouses participation in employer retirement plans.

  • If neither you nor your spouse participate in an employer retirement plan your contributions are fully tax deductible.
  • If you participate in an employer retirement plan the MAGI phase out range is $56,000 – $66,000 for single filers and $89,000 – $109,000 for married filing jointly.
  • If only your spouse is in an employer retirement plan the MAGI phase out range is $167,000 – $177,000 for married filing jointly.

2009 IRA Contribution Deadlines are April 15th, 2010.

IRA Contribution Limits for 2008

According to the IRS, maximum IRA contributions for 2008 are the same for both a Traditional IRA and Roth IRA.  You can also split your contributions among both Roth and Traditional, but your combined contribution amounts are subject to these same limits. The limits do not apply to rollover contributions.

Under 50 years old at the end of 2008:

  • Traditional IRA contribution limits = $5,000
  • Roth IRA contribution limits = $5,000
  • Combined IRA contribution limits = $5,000

Over 50 years old as the end of 2008:

  • Traditional IRA contribution limits = $6,000
  • Roth IRA contribution limits = $6,000
  • Combined IRA contribution limits = $6,000

The limits as they pertain to you are always the smaller of the numbers given or your taxable compensation.  In other words your IRA contribution limits will be the numbers given below unless your 2008 taxable compensation was less than the number given under each circumstance.

Modified AGI rules for 2008

The IRS also says that your IRA contribution limits may be reduced depending upon your modified adjusted gross income (modified AGI).

For 2008 Roth IRA contributions this MAGI phase out range is $105,000 – $120,000 for single filers and $166,000 – $176,000 for married filing jointly.  Basically if your income falls under these amounts your IRA contribution limits will be reduced accordingly.

For 2008 Traditional IRA contributions your MAGI affects your limits on tax deductibility according to you or your spouses participation in employer retirement plans.

  • If neither you nor your spouse participate in an employer retirement plan your contributions are fully tax deductible.
  • If you participate in an employer retirement plan the MAGI phase out range is $55,000 – $65,000 for single filers and $89,000 – $109,000 for married filing jointly.
  • If only your spouse is in an employer retirement plan the MAGI phase out range is $166,000 – $176,000 for married filing jointly.

2008 IRA Contribution Deadlines are April 15th, 2009.

Traditional IRA and Roth IRA Deadlines

As I have touched on in previous articles, if you have not contributed to your 2009 IRA, no need to panic… the IRA deadline is not until tax day – but the sooner you contribute the sooner you can get your taxes done!  🙂

  • IRA deadline for 2008 contributions is April 15th, 2009.
  • IRA deadline for 2009 contributions is April 15th, 2010.
  • IRA deadline for 2010 contributions is April 18th, 2011.
  • IRA deadline for 2011 contributions is April 17th, 2012.

I recommend filing your taxes with TurboTax Online and highly recommend using either Lending Club or Betterment to house your IRA.

Note: I am not a tax professional. Consult IRS Publication 590 and/or your tax professional for details.