Wednesday, 4 November 2015

Earning decent interest on your savings, Part 2: P2P

Remember how I’m not qualified, and this isn't financial advice, and might be a bad idea for you, etc? Just so.  This post includes referral links to accounts that I really use (and only services I really use), no referrals hidden behind the urls, most of them come with a new customer bonus for the referrals.  Alternative Savings (in rough order of IMHO preference):

LendInvest: New in at the top for me this year is LendInvest. LendInvest sell receivables direct to general public investors (what?). Basically, you buy a share of a bridging loan that they have already fulfilled, the receivable you're buying is the interest on your portion of the loan and, obviously, getting paid your capital back at the end of the loan. The loans are typically bridging loans to owners of commercial or residential (buy to let) properties, about 12 months long. You get paid interest monthly, and your capital is repaid at the end of the loan.  The loans are all secured on a 1st charge (i.e. first dibs) mortgage on a bricks and mortar property.  My portfolio of loans pays about 7.4%. You start earning interest as soon as you buy the receivable. There's a minimum investment of £1,000 per loan part purchased, so, you have to weight up the risks for yourselves. I've not had any bad debt over the year or so I've been investing with them.   No referral link for this one.

Ratesetter:  Ratesetter is for peer-to-peer loans, and seem to have a good rate/risk combination the moment. They lend mainly to individuals but have started to include business loans. You don't choose you the individual loans, but you can choose the rate (though the default now has changed to "market rate").  Haven’t had any bad debt in Ratesetter, in theory the provision fund would repay my capital if the borrow did not pay it back. that’s a referral link, I get £25, you get £25 (this has been upped temporarily to £50 each for November).
(Each valid referral will result in the referring Member and the new Member receiving £25 automatically credited to their accounts and immediately lent in the monthly access market, at the current rate. A referred RateSetter Lender must deposit a minimum of £1,000 and have that £1,000 out on loan to be considered as a completed referral.)
I wonder if there is a way to insert the current rates? Anyway, today: 3 year income is 5.0% 5 year income is 6.1%. There’s also 1 year capital 3.6% and a monthly option that hovers between 2.5 and 3%.

Wellesley and Co, I like because loans are secured on property and there’s a provision fund too, they lend their own money first, and if someone doesn’t cough up, pay out customers before themselves. They’re quite new, so keep that in mind from a risk perspective, and the loans they provide are huge (in the high hundreds of thousands to millions, so there’s more of a concentration risk).   You don't choose your loans, your money is spread across all the available loans. All of the loans pay back capital at the end of the term, you can choose to have interest paid monthly or at the end of the term in one lot.  That might be interesting for someone likely to have a tax change in a few years, s an interesting way of deferring the tax treatment to a time when you might be in a lower tax band, for example, if you're nearing retirement.   The interest% is a higher number but that's because you don't get compounding of interest, so it's actually equivalent to the monthly interest option if you reinvested your income.   You earn interest from the moment that you confirm your loan term.

No bad debt for me in about 13 months of using them.  Rates are from 4% (3 years interest) to 5.5% (5 years capital), plus they have mini bonds at 7% for 5 years. I have something in every term and bond they offer. £50 for you, £50 for me.
If your friend opens an account and starts lending with £2,000 or more, we will pay you and your friend £50 each.
Assetz Capital to make me feel environmentally friendly (watch this for risk, the subsidy funding for green energy has very recently massively changed): 7% fixed 3yr term for Green projects.  Warm and fuzzy, no?  They don’t have an official referral link as far as I can find one.  Update as of late December 2015: loans are showing up faster on the platform again now, and Assetz have introduced two new account products, a Quick Access Account, into which you can choose to lend any "idle" funds (i.e. funds waiting for loans to draw down) or just use it as an instant access account paying 3.75%, and the Great British Business Account which automatically lends out your funds across all available loans and pays a fixed 7%. Both of the new accounts are covered by provision funds (lacks some detail on current status but aims to have "5% bad debt coverage") so that the accounts provide regular and reliable income.  I've put funds into both of the new accounts, and I have funds in their standard Manual Load Investments Account, where you choose which loans you want to take part in, my portfolio currently pays about 10.5%.

I’ll post about Abundance another day. 20 year debentures need a bit more explanation!

Zopa: One of the oldest P2P. Rates not as good as the ones above because of the way they charge for services, but always been good service and seem pretty stable. But the rates are guaranteed per month.  Used to have bad debt, but now they’ve changed the way the lending works and have the equivalent of a provision fund concept too. sort of.  Rates: 4% 3 years, 5.1% for 5 after fee.
(Earn £25 each for every new person you refer who takes out a loan or lends between £1000 and £2000. Earn £50 each for every new person you refer who lends £2000 or more)
Funding Circle: I lost more in bad debt than I made in interest after the tax was taken into account.  There is a referral link, but as I'm running down this account, I've not put it in.

On any of the P2P platforms, remember no tax has been deducted, so you have to declare the whole interest  to HMRC, and fees/bad debt can't be deducted for income tax (though bad debt can be offset against capital gains, that's unlikely to make any difference to any person I know). They are fixed term investments, so think about inflation risk, they are not covered by Financial Services scheme.

Thus ends my financial ramblings today. Yes. I think about this a lot. It’s not like the banks are our friends (though Ratesetter seem like very nice people who keep sending me invites for drinks).  If you want to see the latest rates on the P2P platforms in once place, I'm keeping an eye on them here.

hm, and while I'm at it: get a myWaitrose card if you work near a Waitrose; one free coffee every day.  £10 a week saving on your coffee habit?

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