Until today new investors at Lending Club could open an account with as little as $25. This has now changed. Going forward to open a new account at Lending Club you must deposit $1,000. The $25 minimum investment per loan still applies but you will no longer be able to start an account with less than $1,000.
Now, people who have accounts with a balance of less than $1,000 are grandfathered in. They will be able to continue to invest as before. The new requirements only applies to people opening new accounts or those who have yet to make an initial deposit.
The reason for this move can be explained in one word: diversification. We have written many times before about the importance of diversification and Lending Club has a page on their site dedicated to this topic. With $1,000 investors will be able to invest in 40 notes; while that is still not very diversified it is a lot better than investing in, say, four notes when someone starts with $100.
This is a good move from Lending Club. My only concern is that the minimum is still not high enough. I would like to see a $2,500 minimum that will allow investors to start with 100 notes. But I understand where they are coming from. They don’t want to set the bar too high so that people will be reluctant to give them a try.
In my own example I started with a $500 investment in Lending Club back in 2009. I wanted to test them out and wasn’t sure what to expect so I wanted to start out small. Would I have invested $1,000? Yes. I probably would have done $2,500 as well but the bigger the minimum the fewer new investors they will get willing to give Lending Club a try. So, $1,000 is probably a fair compromise.