CNote investments are not insured and are not risk free.
CNote is a low risk investment product. As described below (see section on CNote’s Triple Protection Plan), there are several layers of protection for your investment, but again, it is not totally risk free.
To understand the risk of investing with CNote, you need to understand where your money is invested. CNote invests in Community Development Financial Institutions, commonly called CDFIs. CDFIs are U.S. Treasury certified financial institutions that provide financial services in low-income communities and to people who lack access to traditional financing.
So does that mean that CDFIs lose money often because they loan to low-income communities?
Actually, no. CDFIs have been around for over 20 years, and in that time they’ve racked up an impressive record of financial performance. As a whole, all of the CDFIs that CNote invests in have historical loss rates less than 1% and CNote’s CDFI partners have not lost a single investor dollar to date. Period.
If CDFIs are so great, why aren’t big banks or companies investing in them?
Actually, they are. CDFIs receive investments from just about every major bank – likely including yours. CDFIs are a trusted, and much studied, financial innovation that have a proven track record of security and social impact. They were just never readily accessible to everyday savers like you and me before.
To illustrate, here’s an official Bank of America video explaining the CDFI model and their heavy investment in the same.
CDFIs have been around for more than 20 years and are not new. What is new is the opportunity for regular people like you and me to invest in CDFIs. CNote is the first company that provides the average investor access to these investment vehicles. Generally, in the past, CDFIs only received money from very wealthy individuals and large institutions. We’ve changed that. CNote allows you to invest like those big institutional investors, except instead of signing a check in the boardroom you can invest your dollars sitting in your bedroom.
So, are they really that safe?
Every investment has some level of risk, and past successes don’t guarantee future performance, but CDFIs have fared well in many financial conditions. Indeed, after the great recession of 2008, CDFIs helped fill in many of the lending gaps created by bank failures and a paucity of lending. CDFIs on the whole did not face any significant financial jeopardy as a result of the broader economic distress during the economic downturn. Indeed, they generally fared as well as, if not better than, most banks. The chart below shows net charge off rates (loan loss percentages) from 2000 to 2015. Larger percentages mean more loan losses. As you can see, CDFIs fared well before, during, and after, the financial crisis.
CNote’s partner CDFIs are all certified by the U.S. Treasury Department, and we select them only after a lengthy diligence process where we review their historical financial performance.
Ok, CDFIs sound safe, but what happens to my money if something happens to CNote?
CNote is not a holding company or a bank — we don’t actually hold your money. When you invest your money with CNote, we deploy it with our CDFI partners and they are contractually obligated to pay back your principal and interest even if CNote goes out of business.
To illustrate, even if a giant asteroid hit the CNote offices and wiped us all out your money wouldn’t be vaporized or be lost in the cloud as a series of ones and zeros, it would be with one of our CDFI partners, earning interest, and waiting for you.