Betterment vs Lending Club:
Betterment and Lending both are completely different from each other, but both facilitate investments. You will get a significant difference between both of these companies. Both of these companies offer investment options and other features. The thing that common between both of these companies is a diversified portfolio. Here, we will discuss the difference between Betterment and Lending Club.
Overview of Betterment vs Lending Club:
Betterment is an automated goal-based investment platform, known as the robo advisor. To invest in portfolios of passive index-tracking equality and fixed income ETFs, customers pay low and highly transparent fees.
Lending Club is a peer to peer lending platform that offers the investors to earning interest on the notes, purchase notes in exchange for the low transparent fees.
In this article, we will compare these two platforms and take a good look at their characteristic.
Fees:
To make money, Betterment charges commissions based on the portfolio size. If your account balance is between $0 to $10,000, then you will be charged 0.35% plus the monthly auto-deposit of $100. Without the auto-deposit, you will be charged $3 per month. If your account has a larger account balance, then your percentage will be lower. If you have between $10,000 to $100,000, then Betterment charges 0.25%. If you have a balance of over $100,000, then the commission will be 0.15%.
Whereas, Lending Club makes money from the service fees that they charge to the investors. Their loan service fees are equal to a 1% amount of borrower payments. If anyone not able to pay the payment within the first 15 days, then they will be charged a service fee.
Returns:
The portfolios of Betterment are maximally different and included in index tracking, ETFs, liquid, and low cost. The funds of Betterment are made up of equity and bonds. So, the expected balance is subject to the market risk, and returns depend on asset allocation. When the markets are up, the balance in your Betterment account will grow. If the markets are down, you might lose your money.
With the Lending Club, you might get more predictable returns. If your loan borrowers do not default, your ROI should stay around 6% to 9% from year to year. Based on each loan application and borrower credit reports, Lending club assigns grades. Loans with the highest grades, the interest rates is 5.32%. Loans with the lowest rates can earn a rate of 30.99%. You should know that the highest the interest rate comes with the largest rink of borrower default.
For the Lending Club returns, you can use the time-tested strategy to find out the best loan. You have to select the loans where the borrower’s income is verified, no inquiries in the last six months, no delinquencies in the last 2 years, and the monthly income equal to $5,000 or greater. You avoid the loans in California, Nevada, and Florida, as those states have the highest default rates.
Account Types:
With Betterment, you will get the individual and joint taxable accounts, trust account, and Roth, Traditional, SEP, and Rollover IRAs.
Same types of account, you will get with the Lending Club. But here are few more options, such as the minors account and SIMPLE IRAs.
Liquidity:
Both of the platform Betterment and Lending Club is not a perfect place where you need to be entirely liquid. At Betterment, you can withdraw money at anytime you want. But, at the time when the market is down if you try to withdraw the money, you might lose your investment.
Lending Club allows you to access the money at any time you want. But there is a limitation of withdrawing money. The withdrawing amount is depending on the principal and interest that have been paid on your loan. The notes of Lending Club have the terms of 36 or 60 months. Until the notes are reached its maturity, you cannot get your investment back.
Still, if you want the cash before the note maturities, then you can sell your notes through the Folio Investing’s Note Trading Platform. But if you sell the notes through Folio Investing, then you will charge a fee of 1% of the purchase price of the note.
Account Minimums:
There are no minimum investment requirements to open an account with both Betterment and Lending Club. Without investing any money, you can open a Betterment account. Here, you don’t have to pay any charges for the minimum account fee. But you have to pay a monthly $3 with a $100 per month auto-deposit.
Like Betterment, Lending Club does not require the minimum funding to open an account, but there is a charge of $25 minimum investment per note. For the people who want to diversify your Lending Club portfolio, then they must invest a large amount.
Account Features:
Betterment customers can access services features with the Betterment account, which are basically designed to make goal investing simple. Here you will get automatic portfolio rebalancing and tax-loss harvesting. You can sync your Betterment account with the outside investment account, so you will receive advice on how much you are looking to fees and idle cash.
In Lending Club, you can build a portfolio by following two ways, Manual Investing and Automated Investing. Using the Manual Investing, you can check the available loans listed on the site and you can build your own portfolio. With Automated Investing, you can select the investment criteria, and Lending Club invests in the new loans as soon as they are available. You should select the Manual Investing, as it will save your time and effort.
Availability
To open a Betterment account, you have to be a legal resident of the United States and you must have a social security number, U.S. address, and checking account from U.S. bank.
There are certain states, where the Lending Club is not available, including New Mexico, Alaska, North Carolina, Ohio, and Pennsylvania.
With the Lending Club, investors must meet certain requirements. For the resident of states other than California, must have a gross annual income of $70,000. For those, who don’t meet the gross income requirements, then their net worth must be $250,000 excluding automobile, home, and home furnishings.
For those Lending Club investors who live in California, their gross annual income must be $85,000 and your net worth at least $85,000 or if you don’t meet the requirements, then your net worth must be $200,000. If the resident of California cannot meet the requirements, then they can still invest in Lending Club, but the investment amount is limited to $2,500.
Also Read : Difference Between Wealthfron and Betterment Fees Structure
Risks
Betterment is the registered member of SIPC and FINRA. They can protect the investors up to $500,000. In case, the Betterment went out of business, then your securities would be protected up to the $500,000. Of course, you will not get any protection by SIPC, against the losses due to normal market swings.
You should know that the Lending Club notes are not any bank assets, which means they are not insured by the FDIC. In case, the individual loans go into the default, you might lose your investment portion. So, you should spread your investments over different loans. The cash amount of Lending Club deposited to a pooled trust account at the Wells Bank, which insured by FDIC. That means, your cash is insured by the FDIC.
Conclusion
For those who looking for a diversified investment portfolio, both Betterment and Lending Club are good options. They both offers different investment options. They are not only specializing in the bonds, ETFs, various stocks but also offer the different types of investments.
Reference Link
Betterment: www.betterment.com
Lending Club: www.lendingclub.com
