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I’ve paid thousands of dollars into social security over the years, and I have absolutely no expectation that I’ll ever see a dime of that money again. Like many people my age, I’ve begun to consider how I’ll fund my retirement without the help of social security benefits. While I’m still pursuing the more common options – a 401k and Roth IRA – I recently started looking for other ways I can make my money work for me, which is how I discovered peer-to-peer lending.
How Peer-to-Peer Works
Peer-to-peer websites allow people to borrow money or lend money without going through a bank. The website I use carefully screens and verifies loan applicants, assigning them to a risk bracket based on their credit score, history, employment, and other factors. As an investor, I log on the site and “shop” through loan requests, which I can fund in part or in full (starting at $25), depending on how much I want to invest. If I select a higher-interest, higher-risk loan to fund, I stand to make more money, but run a greater risk of the borrower defaulting.
The Benefits of Peer-to-Peer Investing
While money in my savings account is about as safe as it gets, with a 0.25% APR I’m not making a whole lot in interest. By investing peer-to-peer, I’ve seen – on average – an 8% return on the money I’ve invested. Another major factor in my decision to invest was how easy it is to diversify and control how much I risk. I’m able to fund as many loans as I want to for as much as I want to, and I have full control over which interest/risk category I decide to fund. I’m also able to sell or trade the notes I buy, so my investment remains liquid.
Why I’m Investing Peer-to-Peer
Though there’s an inherent risk associated with any investment, I’ve found the peer-to-peer system to be an ideal choice for me. While it’s not as easy to access my money in an emergency, I’m already seeing about an 8% return on an easy-to-manage investment that helps other people. Payments go directly to my bank account each month, and in six months my initial $3,000 investment has generated $137.80 in interest, compared to the $3.75 it would have earned sitting in my savings account.
For people like me, peer-to-peer investing can be a great money-making option. By taking this slightly less-orthodox approach to banking, I’ve found a relatively safe way to invest that’s user-friendly and easy to understand. While I could probably make more money on the stock market, I’m making more on interest than I would with my bank, and I’m enjoying being a part of an investing system that benefits other consumers as well as me.
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