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Lending Club: The Cost of Inactive Money

Written by Nickel - 5 Comments

I updated our account in Quicken over this past weekend. In doing so, I was able to get a better look at the “real world” performance of my Lending Club portfolio. According to Lending Club, my net annualized return is currently right at 9.60%.

lending club interest rate

According to Quicken, however, I’m running at about 7.5%. Why the difference? The primary cause of this difference has been laziness on my part resulting in an uninvested balance that hasn’t been earning any interest.

When I transfer money in, I don’t always get around to investing it right away, and when payments come in, I sometimes let them accumulate for awhile before re-investing. Unfortunately, Lending Club doesn’t pay any interest on your idle funds.

While it would be great if they did pay interest on your uninvested balance, there are apparently a number of regulatory hurdles that a non-bank must clear in order to do so. The good news is that, as your portfolio grows, a small uninvested balance has much less of an impact.

Regardless, the lesson here is to actively invest/reinvest any available funds if you want to maximize your return. The good news is that Lending Club has an auto-reinvest function (see below) which will automatically create a new investment order when you have funds available, and then e-mail you when it’s ready.

lending club reinvestment

I haven’t really used the reinvest function because I prefer to hand-select my loans. However, I could (and probably should) use it to at least remind when I have funds available. Once I get the notification, I can always login and customize the order. Open a Lending Club account today.

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Reasonable efforts are made to maintain accurate information. See the Discover online credit card application for full terms and conditions on offers and rewards.

Published on December 23rd, 2009
Modified on February 26th, 2013 - 5 Comments
Filed under: Saving & Investing

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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5 Responses to “Lending Club: The Cost of Inactive Money”

  1. 1
    Larry F. Says:

    I certainly ran into this problem (idle funds not collecting interest) when purchasing their free self-directed IRA. It takes awhile to purchase $15,000 worth of Notes!

    Another area of idle funds is when selecting Notes to purchase BEFORE their approved. During the 2 week approval period, the borrower can cancel the loan or Lending Club can terminate the loan request as a result of not meeting their criteria. While your funds are given back to you if a loan is canceled, they’re tied up earning no interest for the entire time.

    As mentioned in the article, it’s a good idea to set your Reinvest criteria in order to receive an Email, even though you may not use the selection made.

  2. 2
    Patrick Says:

    Thanks for the heads up. I recently invested more money in Lending Club and I soon realized that not all funds get invested to I have to keep checking back and reinvesting funds. I didn’t realize that they calculate your ROI with money in cash. That doesn’t seem right.

  3. 3
    John DeFlumeri Jr Says:

    Idle money in a regular savings account pays less than 1% interest, but there is zero risk. It’s a trade off.

    John DeFlumeri Jr

  4. 4
    almost there Says:

    I have given up waiting for LC to invest the money per my instructions. I just keep track of the money available and purchase $100 notes when I reach that level. I will give it a year to see what my actual return is.

  5. 5
    John Says:

    Lending Club fees can be pretty high.

    I have $125 invested including the $25 bonus and I noticed that they take their 1% cut from the payments including principal and interest. Either that or they always round up to $.01 and they make a killing on $25 loans.

    My account value has increased by $1.37, but the interest paid and interest accrued amount to $1.41. They have collected $.04 in fees or 2.8% of my interest payments so far. Let’s just say I think they have a solid business model. I am still making better yields than I would with a traditional CD or savings, but LC itself is making good money.

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