LendingClub is not a savings account — it's a peer-to-peer lending platform where you lend money to other people

LendingClub does not offer traditional savings accounts where you deposit money and earn interest. Instead, LendingClub is a marketplace that connects people who want to borrow money with people who want to lend it. If you put money into LendingClub, you become a lender, not a saver. Your money goes into loans made to other borrowers, and you earn returns based on the interest those borrowers pay.

This is fundamentally different from a savings account at a bank. In a bank savings account, the bank holds your money and pays you interest. Your money stays in one place, and the bank manages the risk. With LendingClub, you own pieces of individual loans, and you take on the risk that a borrower might not repay.

Key Takeaways

  • LendingClub is a lending platform, not a bank, so money you deposit there is not a savings account and is not insured by the FDIC.
  • Your money in LendingClub goes into loans to other people, and you earn returns only if those borrowers repay with interest.
  • If a borrower defaults, you lose part or all of that money — this risk does not exist with a traditional savings account.
  • LendingClub accounts are not the right place for money you need to keep safe or access quickly, such as an emergency fund.

How LendingClub works as an investment, not savings

When you fund a LendingClub account, you choose which loans to invest in or let the platform automatically invest your money across multiple loans. Borrowers pay back their loans in monthly installments, and you receive a portion of each payment as your return. LendingClub takes a fee from each payment before you receive your share.

The returns you earn depend on the loans you choose. Loans to borrowers with better credit histories typically offer lower returns because they are less risky. Loans to borrowers with weaker credit offer higher returns because the risk of default is higher. You have to decide how much risk you are willing to take.

This is very different from a savings account, where your return is set in advance and may provide by the bank. With LendingClub, your actual return depends on whether borrowers repay, and that is never certain.

FDIC insurance does not protect LendingClub accounts

Money in a traditional bank savings account is insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. This means if the bank fails, the government guarantees you get your money back. LendingClub accounts have no such protection.

If a borrower does not repay a loan you invested in, you lose money. If LendingClub itself has financial problems, your money is not protected by any government insurance. This is a real risk you take when you invest through the platform.

When borrowers do not repay: default and loss

Some borrowers will not repay their loans on time or at all. When this happens, it is called a default. LendingClub has a process to try to collect the debt, but there is no may provide you will recover your money. Depending on how many loans default in your portfolio, you could lose a significant portion of what you invested.

A savings account has no default risk because the bank, not you, takes on the responsibility of managing credit risk. The bank decides who gets a loan and absorbs losses if borrowers do not repay. With LendingClub, you are the lender, so you absorb those losses.

LendingClub is not appropriate for emergency savings

An emergency fund should be money you can access quickly without losing any of it. LendingClub fails on both counts. First, your money is tied up in loans that run for three to five years. You cannot straightforward withdraw it whenever you want. Second, if you do withdraw early, you have to sell your loans on the secondary market, which may mean selling at a loss.

A high-yield savings account at a bank is the right tool for emergency money. Your funds stay liquid, you earn interest, and the FDIC protects every dollar. LendingClub is better thought of as an investment for money you do not need for several years and can afford to lose.

The difference between savings and investing

Saving means setting money aside in a safe place where you can access it and where the amount does not go down. Investing means putting money into something that might grow but might also shrink, depending on how that investment performs. LendingClub is investing, not saving.

If you are looking for a place to keep money safe and earn a modest return, a savings account is the right choice. If you have money you can afford to risk and you want the potential for higher returns, and you understand that you might lose some of it, then LendingClub might fit into a broader investment strategy. But it should not be your primary savings tool.

Frequently Asked Questions

Can I withdraw my money from LendingClub whenever I want?

No. Your money is locked into loans that typically last three to five years. You can sell your loans on LendingClub's secondary market, but you may have to sell at a discount, meaning you get less than you put in. This makes LendingClub unsuitable for money you might need soon.

Is my money insured if LendingClub goes out of business?

No. LendingClub accounts are not FDIC-insured. If the company fails or if borrowers default on loans, you could lose your money. A bank savings account offers FDIC protection up to $250,000, which LendingClub does not.

What interest rate will I earn on LendingClub?

Your return depends on which loans you invest in. Safer loans pay lower returns; riskier loans pay higher returns. There is no may provide rate, and your actual return depends on whether borrowers repay. Some investors see returns between 5% and 10%, but losses from defaults can reduce that significantly.

Is LendingClub a bank?

No. LendingClub is a peer-to-peer lending platform. It is not a bank and does not offer bank products like savings accounts or checking accounts. It is a marketplace where you can invest money by lending to other people.