Err, yes, maybe

Cut out the banks and earn 13pc a year on your savings, tax-free, inside an Isa run by a large, reputable firm such as Hargreaves Lansdown.

After five years of rock-bottom interest rates that sort of offer might sound too good to be true. It’s not. This sort of return is provided by a number of socalled peer-to-peer lenders, which act as middlemen who connect savers directly with borrowers. Rates are more generous because there is no bank slicing off a hefty margin for a profit.

There’s also no bank there guaranteeing the return of your capital either.

Better returns, yes, and also more risk. Which is the way it usually works.

13 comments on “Err, yes, maybe

  1. I have some of my excess cash dumped in Funding Circle. I can tell you that 13% is a grossly exaggerated yield figure, by about a factor of 2.

    Its also rather unclear to me how it could be run inside an ISA.

  2. I can tell you that 13% is a grossly exaggerated yield figure, by about a factor of 2.

    Which is actually what the article says. It states a 5% return for Zopa and that the “picture is similar” at FundingCircle. But, it then goes on to say FundingSecure offers 13% and Assetz Capital 12.7%.

    And, on the ISA thing, I’m not surprised you don’t have a clue. But, if you had bothered to look at the HRMC fact sheet for the New ISA, you would have seen:

    Can I hold a peer-to-peer loan or securities offered via crowdfunding platforms in my NISA?

    The Government intends to enable peer-to-peer loans to be held within NISA and will consult on how to implement this later this year. The Government will also explore extending NISA eligibility to debt securities offered via crowdfunding platforms.

    This was widely reported at the time.

  3. William Connolley – “I have some of my excess cash dumped in Funding Circle. I can tell you that 13% is a grossly exaggerated yield figure, by about a factor of 2.”

    That is what you get when you invest in a turnip-fueled donkey-powered renewable company. Not that anyone believes you can crunch the numbers anyway.

    “Its also rather unclear to me how it could be run inside an ISA.”

    So many possible responses, so little time ….

  4. “There’s also no bank there guaranteeing the return of your capital either.”

    Didn’t we learn, a while ago, banks don’t do that. It’s the taxpayer guarantees deposits.
    So, yes. Rates are low because banks slice off a hefty margin for profit.

  5. So many possible responses, so little time ….

    Unfortunately, my contribution is being held in a moderation queue because of all the links I put in to the reports of this shortly after the budget.

    But we know Billy doesn’t treat anything that hasn’t been peer-reviewed by one of the author’s mates as factual.

  6. William, as of the latest budget peer-to-peer lending can now be held within an ISA which is great news.

  7. If people are interested in getting P2P inside an ISA in a practicable way, and have any ideas, can I ask the host, Mr Worstall, to forward them to me. I am running a project to do just that.

  8. Finance people, John 77 etc, would the average saver/investor be mad to put anything into this? I mean certifiable, not just a bit rash.

    I won’t, but interested.

  9. Luke

    the average rate of return is about 3-4%. So anything that promises 3 times that return is ….bordering on fraudulent….

  10. but, Luke…if you piled into the emerging markets at the right time, or ……yes 3 times the narket rate can be achieved, but not for long. Markets do tend to be efficient in a weak sense.

  11. There is also the term of the savings that often gets ignored. Banks deposit rates are generally for instant access (or maybe 3 months notice etc). Funding Circle, Zopa and the rest will be quoting rates for ~5yrs. Pretty important difference when overnight rates are ~0.5% and 5yr interest rates are more like 2%.
    Funding secure is a P2P Pawnbroker – so I don’t really think the 13% rate quoted is in any way comparable (it is also the rate on the ONLY loan on the site, that has not yet even funded).

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