investing

Internet sites make you the banker

Don Taylorq_v2.gifDear Dr. Don,
Prosper.com is offering an interest rate over 9 percent. How do they work? How is the return guaranteed? Is their account of less than $100,000 insured by the U.S. government? Please advise.
-- Hisako Homework

a_v2.gifDear Hisako,
You can potentially earn these kinds of yields by loaning money on Prosper.com, but there's no guarantee of repayment. You're not a depositor -- you're acting as the banker. Because it's not a deposit, there's no deposit insurance.

The Bankrate feature, "Person-to-person lending: High return, but risky?" explains the concept in greater detail. The article mentions another Web site, Zopa, that is a social lending network.

Lending on Zopa is a depository relationship where you'll earn yields closer to CD rates and be invested in insured deposits. You get to pick the borrowers but you don't take on the credit risk. Because you don't take on the credit risk, you don't get the higher yield. In fact, you can choose to receive a lower yield to help the borrowers who are using your funds to reduce their interest expense.

This is all a far cry from Nobel Laureate Muhammad Yunus' pioneering work as the founder of Grameen Bank. Yunus developed the use of microcredit lending of unsecured funds to the poor as a way for them to finance businesses that would potentially break the cycle of poverty for that family. His 2006 Nobel speech is uplifting and a great reminder of how innovative thoughts and deeds can help change the world for the better.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "Financing a home," "Saving & investing" or "money."

advertisement

          Connect with us
advertisement
CD & INVESTING NEWSLETTER

Learn the latest trends that will help grow your portfolio, plus tips on investing strategies. Delivered weekly.

CDs and Investment

How should my teen invest $150K?

Dear Dr. Don, My son will turn 18 years old in December. He has $150,000 from a settlement now sitting in the bank. What is the best plan to pursue for investing this money? Is investing in precious metals a good way to... Read more

advertisement

Blog

Dr Don Taylor

Earnings season, investing and you

It's earnings season. Stocks can see big changes in their price based on the information released when they report their quarterly results and offer guidance about the firm's future prospects. Information moves markets, but should individual investors try to anticipate financial results in an earnings report or react to the release of those results? Individual  ... Read more

Partner Center
advertisement

Connect with us