Fidelity’s Fully Paid Lending Program: Is It Worth the Risk?

If you’ve ever wondered whether your idle stocks could be working harder for you, Fidelity’s Fully Paid Lending Program might just be the answer. In this blog post, we’ll talk about what this program entails, how it works, and whether the potential rewards outweigh the risks.

Understanding Fidelity’s Fully Paid Lending Program

Fidelity’s Fully Paid Lending Program allows you to earn extra income on the securities you already own by lending them out to other traders. In return, you receive a payment, a percentage of the value of the lent security.

How does it work?

When you opt into the program, Fidelity lends out your shares to those looking to short sell. This means other traders are borrowing your stocks with the expectation that their value will decrease, allowing them to repurchase the shares at a lower price.

How much interest does Fidelity Fully Paid Lending Program pay?

Example Scenario:

• Let’s say you own shares of SPY (S&P 500), and Fidelity offers a lending rate of 5.25%.
• If you have a 10% dividend on SPY, with the lending program, you could potentially earn a total of 15.25% on your investment.

Insights from Users

Positive Experiences:

• Users like Jeremy have reported positive experiences, emphasizing it as essentially free money.
• Darryl prefers using the program in retirement accounts to avoid tax complications.

Tax Considerations:

• One downside, highlighted by Jeremy, is that if the lent security pays dividends in a taxable account, it is taxed as regular income, not at the qualified tax rate for dividends.

Risks to Consider:

• The real risk, as pointed out by users, is if the bank facilitating the loan goes under, it may affect the lender. However, there’s no widespread history of this happening.

Choosing Securities to Lend:

• More volatile or in-demand stocks are often selected for lending, and less popular stocks may not be in demand.

In conclusion, Fidelity’s Fully Paid Lending Program offers an avenue for incremental income on your existing securities. If the idea of earning extra income with minimal effort aligns with your investment strategy, this program might be worthwhile.