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How to get a 14% return from RateSetter

Mixing RateSetter’s £100 bonus offer and high interest rates should deliver a tasty return

Good news! RateSetter has brought back its £100 bonus for investors who put away just £1,000 for a year. To get the bonus, follow my links to RateSetter in this article. I will also be paid a bonus by RateSetter if you sign up via one of these ‘refer a friend’ links to claim your £100 bonus. This doesn’t affect your returns – it is paid by RateSetter.

I won’t cause any readers to fall to their knees screaming “No! How can it be? Why didn’t somebody tell me!” if I say it’s been hard to get a decent interest rate on cash for the past few years.

Even the Bank of England’s rate rises haven’t done much. High Street banks always drag their feet in passing on rate rises.

But in this article I’ll explain how you can effectively get a 14% return on a chunk of your cash by taking advantage of a bonus offer from RateSetter, the peer-to-peer lender.

True, this very attractive potential return does not come without some risk.

In practice, no Ratesetter investor has yet lost a penny. Every lender has received the rate they expected.

Nevertheless, peer-to-peer does not have the same protections as traditional cash deposits, so you should think about it differently to cash in the bank. More on that below.

If you can accept the risk and have the spare cash to hand, I believe this is a pretty safe – though not guaranteed – way to make a good return.

It also exemplifies how being nimble with your money can enable you to achieve higher returns – even in today’s low rate world.

Not a few Monevator readers have taken advantage of this win-win RateSetter offer over the past couple of years!

About RateSetter

RateSetter is one of the new breed of peer-to-peer lenders aiming to cut out the banks by acting as a matchmaker between ordinary savers and borrowers like you and me.

Rates change all the time, but as I write you can get up to 5.4% as a lender with RateSetter by putting your cash into its five-year market.

Since March 2018 you’ve also been able to open a RateSetter ISA, which means you get your income tax-free.

Meanwhile borrowers can get a loan charging less than 4%. RateSetter claims that rate is competitive with the mainstream banks, and says banks are its competition (rather than it simply getting all the bank rejects).

RateSetter charges no lending fees, which is great news for savers like us. Borrowers do pay a fee.

Over £2.5 billion has now been lent through the RateSetter platform. This is no longer a tiddly operation.

And importantly, of the 66,942 investors who’ve lent money with RateSetter not one has yet lost a penny of their investment.

In 2010 RateSetter set-up a ‘Provision Fund’, which is funded by charging all borrowers a risk-adjusted fee.

Money from the Provision Fund is used to repay lenders whose borrowers miss a payment, for as long as there’s money in the fund to do so.

It’s a different model to the initial approach of rivals like Zopa. Back then you were encouraged to spread your loans widely and accept a few would go bad, reducing your return.

The RateSetter approach is different.

But as sensible people of the world, we should understand there’s no magic here.

Downside protection

Some loans will still go bad. And those bad loans will still reduce the returns enjoyed by lenders in aggregate – because the Provision Fund fee levied against borrowers as part of the cost of their loan could otherwise have gone to lenders through a higher interest rate.

However what the Provision Fund does is share those losses between all lenders, reducing everyone’s return a tad.

This makes your returns predictable. Your outcome should be dependent on the interest you receive – rather than being distorted by the poor luck of being personally hit by an unusually high number of bad debts.

Note that the Provision Fund does not provide complete protection against a situation where all the loans made at RateSetter default. Far from it!

Rather the Provision Fund aims to cover the bad debts predicted by RateSetter’s models, with a margin of safety on top.

At the time of writing, Ratesetter says:

In the event that credit losses were to increase significantly, the following things would happen:

  • The Provision Fund would reduce in value as it reimburses investors for missed payments.

  • The Provision Fund is large enough to cover credit losses up to 116% of expected losses. If credit losses rose above this level, the Provision Fund would be depleted and investors would earn less interest than they expected, but their capital would be unaffected.

  • If credit losses rose even further and exceeded 231% of expected loses, investors would start to lose capital, which means that they would get back less money than they put in.

  • In this instance, it may take longer than expected for investors to receive their money back and access to funds may be restricted.

What would happen if losses did exceed the RateSetter projections?

First the Provision Fund would be used up, and ultimately exhausted.

After that interest payments could be redirected to repaying capital. You’d lose on interest payments, but it could cover lenders’ losses on capital unless the default rate got too high.

Finally, in a doomsday scenario with very high default rates, capital could be eroded. I’d expect other investments like equities and corporate bonds would also be taking a pummeling. But cash in the bank would not.

At the end of the day, I believe for most people the Provision Fund approach is preferable to the lottery of individual loans defaulting. But don’t mistake it for a panacea or a guarantee.

You could conceivably lose money if defaults are much worse than expected. More on that below.

How to bag that 14% return from RateSetter

At last, the good bit!

RateSetter is currently offering a £100 bonus to new customers who invest at least £1,000 in any of its markets and keep it there for a year.

This £1,000 minimum investment can be made up of new subscriptions and/or transfers from other ISA providers.1

The £100 bonus is paid once that year is up. It will be deposited into your RateSetter account, after which you can choose to do with it (and the rest of your money) as you please.

Clicking on any of the RateSetter links in this article will take you directly to the sign-up page for the £100 bonus.

For full disclosure, RateSetter will also pay me a £50 bonus if anyone does sign-up via my links, which would obviously be very welcome! My bonus doesn’t affect your returns. It’s paid by RateSetter.

As for your £1,000 investment, you can put it into any RateSetter market, which range from a rolling one-month option to a five-year lock-up. But you must keep it within RateSetter for a year to get your £100 bonus.

To keep things simple, let’s assume you invest your £1,000 in the one-year market, which matches the period required to qualify for the bonus.

The one-year market is paying 4.7% as I type.

So after one year you’d have your 4.7% interest on your £1,000 and you’d also receive your bonus, which works out as a return of 14.7% on your £1,000.

Very nice!

I’ve ignored taxes here because everyone’s tax situation is different.

The good news on taxes is that:

  • You can now open a RateSetter ISA and collect the bonus. You can fund this with a transfer from another ISA provider. In an ISA the income you earn is tax-free.
  • Most people even outside of an ISA will pay no tax on cash interest, thanks to the new-ish Personal Savings Allowance that covers the first £1,000 of interest earned by basic rate taxpayers, and £500 for higher-rate payers.

Is this bonus too good to be true?

A great question.

Clearly it’s not sustainable for RateSetter to lend your money out at, say, 4%, while paying you an effective rate of nearly 15%.

(The cost is even higher to RateSetter if it pays me a bonus, too.)

RateSetter must be hoping this is the start of a multi-year relationship with its new sign-ups, after they become comfortable with its platform.

Once you get over the initial hurdle, peer-to-peer is straightforward. I’ve used these platforms for ten years now.

RateSetter will hope many customers deposit more than £1,000 and ultimately prove profitable in the long-term.

Like all peer-to-peer lenders, RateSetter will be aiming to scale as quickly as possible. Greater size will improve its margins and enable it to continue to meet demand in both the savings and loans market. Scale is a critical factor in virtually all money-handling businesses.

Finally, I expect the cost of this offer is allocated internally to its marketing department.

If 5,000 people sign-up for the bonus that’s clearly a lot of money – but it wouldn’t buy very much TV airtime. At least this way RateSetter can precisely calculate the return on its investment.

I do think it’s a smart question to ask, though, and it neatly brings us back to risk.

A final word on the risks

I have already stated that peer-to-peer lending is not a straight swap for a cash savings account.

The risks are higher.

Firstly and crucially, there’s no Financial Services Compensation Scheme coverage for peer-to-peer lenders. If you lose money, the authorities will not bail you out like they would for up to £85,000 with a High Street bank savings account.

That’s important because even though no savers have yet lost a penny with RateSetter, that’s not a guarantee they will not do so in the future.

The economic situation could change markedly, say, or RateSetter could get its sums wrong on bad debt.

In the most likely (in my opinion) worst-case scenario, the Provision Fund would not be able to cover all the bad debts. This would mean some loss of interest.

  • According to RateSetter, as of August 2018 the loss rate experienced to date is 2.29%.
  • It currently projects this to rise to 3.33%. (Loans take a while to go bad.)
  • If credit losses rose to 127% of expected losses, RateSetter‘s model indicates the Provision Fund would still cover interest.
  • In what RateSetter terms a severe recession, you’d get no interest but it believes you’d get your initial money back.
  • If we saw 400% expected losses, investors might lose 5.6% of their capital.

This illustration is summarized in the following chart:

Provision Fund figures correct as of 1st August 2018. (Click to enlarge)

Source: RateSetter

As for the worst worst-case scenario, like with any business it is possible to imagine catastrophic situations where you’d lose much more.

But to my mind these would probably require fraud or massive incompetence within the company, and/or a far deeper recession than anything we saw in 2008 and 2009. (Probably both at once – as Warren Buffett says you only see who has been swimming naked when the tide goes out.)

Obviously I don’t think that’s at all likely, otherwise I wouldn’t have put any money into RateSetter.

But a hint of what might have gone wrong came in 2017, when the company intervened to restructure several businesses and cover repayments from one via its own funds. This prevented its bad loans from being defaulted to the Provision Fund. This decision to intervene reportedly2 delayed authorization from the FCA. It has subsequently been granted.

RateSetter says: “This intervention was an exception and will not happen again.”

As I understand it, RateSetter has since withdrawn from the wholesale funding operations that produced this situation. (Wholesale funding is when a company lends money to third parties, who then lend those funds on themselves.)

You invests your own money and takes your choice.

Personally, I am happy with the risk/reward here. Not everyone feels the same. My co-blogger, for instance, doesn’t use any peer-to-peer platforms.

As a halfway house to reduce risk one could perhaps only invest in RateSetter’s monthly market, in the hope this would give you more chance of getting money out relatively quickly if say the economy was coming off the rails. The price is a lower interest rate, of course.

I think it’s worth stressing again that nobody has lost money so far with RateSetter. And even if the economy turns very far south, you probably won’t lose more than a small percentage unless something very bad or criminal happens.

That would be a much worse situation than with cash, but not a catastrophe.

However we all know by now that bad things can happen, and every investment can fail you. Do not invest money you cannot afford to lose.

RateSetter and your portfolio

Personally I have always taken a pick-and-mix approach to spread the risk with these sorts of alternative opportunities.

For instance, I have used both RateSetter and Zopa, I’ve invested a little in mini-bonds and retail bonds, I have money with NS&I, and I have taken advantage of high interest rates and cashback offers with accounts like Santander 1-2-3 to boost my returns.

When putting money into the riskier alternative options, I only invest a low single-digit percentage of my net worth with any particular platform. Like this I aim to mitigate the risks of being hit by some sort of systemic or company failure.

I’m not going to labour the point on risk further. Most peer-to-peer articles barely mention it, and I’ve devoted half this piece to it. Consider yourself warned, and read the company’s extensive material if you want to know more.

I think peer-to-peer and other cash alternatives are interesting additions to our arsenal as private investors. But they’re not slam dunk safe bets. I size my exposure accordingly.

Get your £100 while it lasts

So there you have it – a hopefully even-handed assessment of the risk and reward potential of this £100 bonus offer from RateSetter.

From here you’ll have to make your own mind up.

I do hope some of you found this article interesting and enjoy those bonus-boosted returns.

  1. Note: Terms and conditions apply with transfers, so check the small print. The money must be transferred over within a certain time period, which may be down to the ISA provider you’re transferring from. Just setting up a new RateSetter ISA with a fresh £1,000 should be straightforward. []
  2. See this article at Reuters: https://uk.reuters.com/article/uk-interview-ratesetter/ratesetter-recovering-after-asteroid-strike-bad-loan-discovery-idUKKCN1BN1PF []

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Comments on this entry are closed.

  • 51 John B March 15, 2016, 10:29 am

    Done. Bit surprised that the yearly rate was 3.2% when I logged in, and 3.8% when I refreshed 10 minutes later!

  • 52 Richard D March 15, 2016, 7:26 pm

    Hi Monevator – thanks for the posting – I’ve just signed up. Hopefully you’ll get your £50, well deserved for all the useful emails I get from you!

  • 53 Tim G March 15, 2016, 10:10 pm

    @Steve

    I seem to get asked for checks every time! I think I’m just not included on some vital database, possibly because I am self-employed and spent a few years abroad. As a result, I always have to send in supporting documentation (ID, utility bills etc.) of the sort that is becoming increasingly hard to find in our paper-free world.

  • 54 Paula March 16, 2016, 12:02 pm

    I have signed up with £1000 and been matched at annual rate of 4.2%, using your link so hopefully you will benefit too.
    Novice questions:
    1- If the Borrower repays prematurely how does that affect a) your return, full amount for shorter period and b) if it cannot be matched again, how does that affect you earning £100 bonus if not placed for full 12 months?
    2-Can I go through process again with another £1000 and get a second £100 bonus and so on?
    Thanks for introducing me to a new way of investing!

  • 55 Nuno March 17, 2016, 9:00 am

    You should also get 50 quid from me! Enjoy your meal because you totally deserve it. Many thanks for the great stuff you’ve been sharing with us!

    Btw, no ID checks, which I often get asked to do. Got 3.9% for 1 year but still waiting to get to the front of the queue which is at 3.6%. They tell me that I still have 1 month to qualify for the £100 bonus, so I guess if I am not at the front of the queue by then, I should lower the rate I am asking for in order to get the bonus, right?

  • 56 The Rhino March 17, 2016, 1:07 pm

    @Nuno the rates seem pretty volatile – if you leave it for a bit it will prob get lent

  • 57 Nuno March 17, 2016, 11:23 pm

    @The Rhino Thanks! You’re right, it got lent at 3.9% in 18 hours!

  • 58 Sam Priestley March 18, 2016, 3:19 pm

    Nice article! I have been using Zopa, Ratesetter and Funding Circle for a few years now and probably have way too much of my net worth in them – about 25%.

    Here’s how I’ve found them:

    Now that Zopa and Ratesetter operate in a similar way, Ratesetter seems to always have better rates. I have my money on the five-year loans with automatic reinvestment. It’s a great set it and forget it system. I don’t think I have touched my Ratesetter account since setting it up over three years ago. Unlike with bank accounts, it doesn’t require me to always be moving money around and opening up new accounts to make the most of introductory rates.

    Funding Circle is a bit of a different beast and much more hands on. Instead of lending to people you are lending to businesses and instead of your investment being spread out automatically you have to choose each individual business you lend to. The auto-bidding algorithm is really bad, so if you want to be truly diversified it can take a bit of work to spread out your money manually.

    But on the plus side, the rates are higher and they have a strong secondary marketplace where you can buy and sell loans. It means that even though most of my money is lent out on 5-year terms, I can always sell out quickly for a small profit or loss. The rates are also higher, since joining a little over three years ago I have averaged 8.9% at FC vs 5.9% at RS.

    About a year ago I wrote an article about maximising your rate from Funding Circle that you might be interested in (http://www.arbing.co.uk/higher-return-funding-circle/). Mainly it is about arbitraging the two marketplaces and since they changed the way the auction system works some of it is now redundant, but most of the points are still relevant and useful/interesting.

  • 59 Burgmeister March 23, 2016, 11:01 am

    Hmmm. Bit wierd. My wife signed up following the link in the article and matched £1000 in the annual market. She received an email confirmation of this. This morning she received another email saying that her £50 has been matched in the monthly market. What £50? I wonder whether following the link from here has automatically put her in the £50/£50 refer a friend deal, rather than the £100 one? Anyone else get this that followed Monevator’s link?

  • 60 Burgmeister March 23, 2016, 6:14 pm

    Of course I wouldn’t expect you to do third-party support – I don’t believe I asked for any? I was just wondering whether any other of your readers had experienced the same thing.

    Unfortunately my wife has not had time to check her account as she has been rather tied up today but I’m sure she will when she gets home, and I’m also sure that, if she finds the £50 registering in her account, she will query it with Ratesetter.

    Like I said, just seeing if she is a “one-off” or not.

  • 61 Tim G March 23, 2016, 7:01 pm

    @Burgmeister

    Odd – I’ve had the same experience: a £50 bonus appearing (despite me not referring on to anyone). The £100, as far as I can tell, is due to appear in my account at the end of the year. Will report back in 2017!

  • 62 Dan RateSetter March 24, 2016, 10:55 am

    Hi @Burgrmeister, @Tim G, Dan at RateSetter here. That sounds odd – would you mind sending your details through to contactus@ratesetter.com so that we can look into it?

    Thanks!

  • 63 Baby Boomer in Croydon April 8, 2016, 5:38 pm

    Just invested the #1000 though one of the links. My account shows I can still invest #1000 up to may to get the bonus? I need to check with them if my investments counts.

    enjoy your meal and thanks for a great blog

  • 64 theta May 2, 2016, 9:10 pm

    Maybe you should change the “14% return” in the title to “around 10%-10.9% return”, as the current lowest OFFER for 1 year lending is 0.9%, and there’s no bid!
    It seems there’s a lot of lenders at the moment that have pushed rates down across maturities. The 3 yr bid-offer is 2%/2.2% and the 5 year is 4.6%/4.7%. Less than a week ago I lent in the 5 year market (after clicking through Monevator’s link!) at 6.1%!
    After seeing this low rate for lending, I was tempted to apply for a loan (to put against my offset mortgage), figuring that even after Ratesetter takes a cut, I would still be able to borrow for around 1% or so. But no, I was quoted 5.7%!!!

  • 65 The Investor May 2, 2016, 11:29 pm

    @theta — Ouch! That said, as you say it does move around. I saw 3+% when I last looked, which was either over the weekend or just before. I wonder if that very low rate might be an artifact of the Bank Holiday weekend?

  • 66 The Investor May 2, 2016, 11:31 pm

    Update — I’ve just checked and you can currently lend at 3.3%. So things clearly a little volatile, but I think premature to suggest more persistently depressed?

  • 67 theta May 3, 2016, 1:24 pm

    Ha, indeed, now it’s 3.4/3.5% for the 1yr. The 3yr and 5yr remain low though at 2/2.1% and 4.6/4.7% respectively. The term structure is especially weird, with an implied 2yr fwd rate starting in 1 yr of about 1% and implied 2yr fwd rate starting in 3 years of more than 8%!!!

  • 68 theta May 3, 2016, 9:38 pm

    It’s getting worse – Current 3yr mid market rate is 2.05% and 5yr is 5.95%. Therefore implied 2yr forward rate starting in 3 years’ time is just over 12%! 😮
    There’s clearly excess demand to borrow for >3 years and excess lending supply for 3 yr maturity (more so than 1 or 5 years). For the demand side I can see a reason, if it’s a business that needs to avoid refinancing risk. For the supply side though it’s not justified, as lenders are better off blending 1 and 5 yrs to achieve the same duration and much higher returns.
    Overall it’s clear that this inefficiency is a result of poor liquidity, which can be at least partially attributed to the lack of market makers / arbitrageurs. If Ratesetter expanded their “sellout” feature to allow effectively active trading of customers’ positions, they would improve liquidity across maturities and at the same time they would raise their profits from the increased transaction fees. As an example, if they charged 0.1% per side, people would trade in the order book until the 3yr rate sat somewhere in between the 1yr and the 5yr ones. this would bring better rates for lenders in the 3yr market and borrowers in the 1yr and/or 5yr ones (and overall fairer for everyone), some profits for the arbitrageurs and additional profits for Ratesetter from transaction costs.

  • 69 David June 3, 2016, 12:18 pm

    My return from this so far is looking like about 18.5% with £2,000 of capital at risk for a year. That’s my own £100 bonus, my partner’s £100, my £50 for referring my partner, plus another £50 for the one friend I’ve so far found who also thought it was a good idea to invest. So 300/2,000 and 3.5% interest = £370 or 18.5%

    Any additional friends that either of us successfully refer are going to keep adding a further 2.5% to the overall return (50/2000) with no additional risk (to me).

    Hope it’s been lucrative for you too Investor – out of interest, how does it compare to all those tiresome Amazon links, or is that a trade secret 😉

  • 70 Steve June 7, 2016, 10:30 pm

    Just signed up, enjoy the bonus 🙂

  • 71 Ivan July 13, 2016, 5:41 am

    Post Brexit viewpoint ?

  • 72 The Investor July 13, 2016, 10:04 am

    @Ivan — Hi. I think peer-to-peer, including Ratesetter, is riskier in the light of Brexit. Personally I’d still go for the £100 for £1,000 for a year minimum investment offer if I hadn’t already, the effective risk-to-reward still looks good to me. But as always I am not prescriptive nor responsible for others’ actions, and readers will need to make up their own minds. 🙂

    I’m going to do a follow-up post when I get a chance about P2P, contingency funds, and likely an aside about Brexit.

  • 73 Paul July 16, 2016, 11:11 am

    If you invest £10,000 in the 5-year-market at 5.7% annualised returns but withdraw all the money after 3 years, do you still get 5.7% return for year 1, year 2 and year 3? What keeps people from signing up for the 5 year market but withdraw everything after 1 year?

  • 74 Nuno August 5, 2016, 1:56 pm

    @The Investor “I’m going to do a follow-up post when I get a chance about P2P, contingency funds, and likely an aside about Brexit.”

    I would love to hear your thoughts on P2P post-Brexit. Looking forward to it. 🙂

  • 75 Andy August 19, 2016, 11:59 am

    @Paul I imagine that if you lend for 5 years, but then interest rates go up and you try to get your money out, other investors are unlikely to want to take over your loan since higher interest rates are available.

  • 76 John B August 19, 2016, 5:45 pm

    @Andy Funding Circle secondary market allows you to set a +- 3% discount/premium when selling, which would allow for that. More flexible than a 5 year savings bond, but it would be galling to take the explicit hit on less attractive loads.

    The higher-level sites like Ratesetter must rely on selling back to the company, so the hit is less clear.

  • 77 Roger August 22, 2016, 9:30 am

    I punted £1K via your link, and expected just to put it in a 1 year loan, but am a bit surprised at what I find:
    5 year Matches last 24 hours: 315
    3 year Matches last 24 hours: 204
    1 year figure not even given
    Rolling Matches last 24 hours: 11568 Borrower offers for £7M, £10M on offer.

    So the 1/3/5 year loans aren’t really the business (I understand they are dropping 3 year anyway), it the Rolling Market.

    Then the £7M borrower (unsatisfied) offers implies some sophisticated (big?) bidders out there.
    So, has anyone looked under the bonnet of Ratesetter, as to where the bulk of the cash is loaned? My guess is that it is primarily going to property developers, and any downturn in the UK property market will hit hard.

  • 78 tony bage August 23, 2018, 12:41 am

    Hi Monevator, what I would like to know is this: Not counting the ‘commission’ you have made (or re-invested), how much personal money of yours have you invested? ….this should be interesting.

  • 79 The Investor August 23, 2018, 2:25 am

    @tony — Why interesting? I say in the article that I don’t invest more than low single digit percentages of my net worth into any such platforms. You don’t know what a significant sum is for me, and it might be a lot more or less than it is for you. I’ve done my best job of explaining the pros and cons of the platform to you, but it’s up to you to make your mind up. Your slightly troll-ish sounding comment seems to presume some particular high or low sum would be interesting, but it should have nothing to do with your own situation whatsoever.

  • 80 Paul August 23, 2018, 9:32 am

    I presume I’m pointing out what you already know, but have you looked at Kuflink.

    Only £500 needs to be invested for 12 months for a £100 sign up plus the 4% interest – so a c.24% return.

    Sign a partner up and then it’s £100 each, so for a couple investing £1,000 the return is c.34%. Not life changing but worth a look for those who invest in P2P.

    Obviously the same concerns as with all P2P lenders around lack of protection so people need to assess themselves and the risk of bad debts in each case. I used the automated investing which spreads it over 10 loans at the lower interest rate to be more secure.

  • 81 Mr_Curious August 23, 2018, 9:39 am

    I have a question that in all honesty is a bit of a silly one. As it is an ISA, do any profits made count as part of your annual contribution? Or is it more along the lines of dividends within an ISA and does not count towards the allowance?

    A bit basic but if anyone can clear this up I’d appreciate it.

    Great blog. I have found it incredibly useful

  • 82 Hari Seldon August 23, 2018, 10:19 am

    Interesting article and useful sections on the risk, limiting investment to small single digits of net worth is not going to hurt anyone but I am puzzled by the economic model.

    It seems that I can lend £20,000 for 5 years and get 5.7%, I can borrow on the same terms at 5.9%, not much of a margin. Tesco offer me the same loan at 3%, arbitrage opportunity perhaps ! More seriously they will be attracting less creditworthy clients, than say Tesco bank and operating on a very small margin….

    Not that Tesco lending makes much sense , the offered rate is only marginally less than a similar maturity corporate bond from Citigroup, with a market cap of $181 billion they clearly deserve a better rate than me, but less than 30 basis points….. (2.71% ytm over 5 yrs 11months)

    On the basis that “bad returns in bad times” come around from time to time I rather suspect that the peer to peer lending model may be severely tested in “bad times” and less well informed investors than Monevator readers may regard it more like a bank account.

  • 83 The Investor August 23, 2018, 10:36 am

    @Hari — The rates move all over the place constantly, so I’d be wary about drawing too much in the way of conclusions from two spot quotes. That said, your point is well taken. These platforms are built on the premise that they can forego most of the margin of a bank to the benefit of lenders/borrowers, and still make a profit. And ultimately the jury is still out on that.

    Ultimately it’s a matter of personal risk tolerance. People (including me) have had questions from time to time about these platforms over the years, if not outright skepticism, but Zopa and RS have both prevailed, for more or less a decade, and delivered decent returns along the way.

    As I say in the piece I think the place to put your money if you’re nervous is the monthly market. You’re often not giving up much of the spread for that access. That said the access isn’t guaranteed, so if one had second thoughts in say a recession you’d want to be trigger happy and get out sooner rather than later.

    And yes, I’d keep allocations low and have in the past on a percentage basis. The FCA is worried because it is finding people putting half their life savings into P2P etc. That’s foolish.

    @Paul — I’ll have a look, but to be honest I am hyper picker about P2P platforms. I’ve only felt very confident about half a dozen of them, and used fewer. Still, RateSetter and Zopa were young/small once I guess.

    @Mr_Curious — It’s only an ISA if you open it in an ISA. You can also have a standard non-ISA RateSetter account. Depends what you want to use this vital tax wrapper for.

    Anything earned in any ISA (capital gains, dividends etc) is never taxed, and never counts towards your annual contribution. It’s only fresh money that counts — as you know you can add up to £20K a year.

  • 84 Mr_Curious August 23, 2018, 7:00 pm

    Thanks for the response @TA.

    Just as I had thought but always best to check I guess. Expect another little reward coming your way over the weekend!

  • 85 Naeclue August 24, 2018, 9:22 am

    Interest I assume is taxed as normal interest income, but what about the £100 bonus?

    Also, what is the tax treatment of losses? For example, can losses be used to offset interest gains, or be used to offset capital gains?

  • 86 The Investor August 24, 2018, 11:54 am

    @Naeclue — When I’ve had referral bonuses paid it’s been broken out on the end-of-year consolidated tax certificate from RateSetter as separate from interest income, but of course it’s still taxable income. I’m sure it’s the same with the £100 bonus.

    As for losses, they can in theory be used to offset other interest gains.

    See HMRC guidance here:

    If a peer to peer loan isn’t repaid the lender can set the loss they suffer on the loan against the interest they receive on other peer to peer loans before the income is taxed.

    Tax relief is available to peer to peer lenders who:

    are liable to UK Income Tax on their peer to peer income
    make loans through peer to peer lending platforms that are authorised by the FCA
    are the legal lender at the time when its agreed that the loan has gone bad.

    https://www.gov.uk/guidance/peer-to-peer-lending

    Because of the Provision Fund, you wouldn’t ordinarily see your losses however; any loans that default will be topped up by the Provision Fund. If the latter was exhausted and you did sustain a capital gains loss, then it’s my understanding (and I’m not a tax accountant etc!) that the above guidance would come into affect.

    I believe Zopa introduced its SafeGuard fund because at some point losses could not be set off like this, and then a couple of years ago reverted to its old model because HMRC guidance changed. But that’s from memory, so please DYOR if it’s an important / material issue for you.

    @Mr_Curious — Cheers, enjoy yours! 😉

  • 87 Paul August 24, 2018, 1:40 pm

    @Investor – I agree, I’m only got a small investment in both Ratesetter and Kuflink now given the risk. Kuflink was acceptable in the end mainly on the back of the referral fee as it gave cover for some losses but I’d want to monitor those investments before I put more in. In theory, there is security over the properties and the platform taking an initial loss similar to Ratesetter loss provision, but there’s always a concern. Fine though as a fragment of a rounded portfolio of investments.

  • 88 Lola August 26, 2018, 5:18 pm

    I just had about enough of getting lovely 0.35% from Halifax on my savings so this is a timely reminder to act. I click through but I’ve used Ratesetter before and so have an account and I am not sure if I will get a £100 bonus? Is it for new customers only?

  • 89 The Investor August 27, 2018, 10:42 am

    @Lola — I think it’s new customers only but not sure how that’s categorized. A partner or similar would be a new person I suppose?

  • 90 Nearly There August 30, 2018, 7:21 am

    @Naeclue do your own research of course, but it appears that one-off kickbacks are free of all tax (treated as a discount). But long running ones like 1% on a debit card are taxable. See for example https://www.taxadvisermagazine.com/article/savings-income-issues-including-bank-accounts-paying-‘rewards’ but don’t just look at the bullet list at the end: see the paragraph in the middle in parentheses.

  • 91 Andy J October 3, 2018, 10:43 am

    @Investor – thanks for flagging the bonus and the incredibly well thought out analysis. Which as always on your site is hugely helpful. Along with some other generous types (John Kay and Mr Money Moustache in particular) who share their thinking on finance and investing I think you’ve saved me material sums of money by avoiding adviser and fund charges. Many many thanks and keep up the brilliant work. ( I’ve signed up via the referral link so cheers again for that)

  • 92 The Great Escape October 10, 2018, 6:17 pm

    Referral bonus on the way as a very small thanks for the outstanding quality of the monevator articles, brexit coverage excepted.

  • 93 The Investor October 10, 2018, 6:19 pm

    Cheers The Great Escape and any other who chose to sign-up via my link. (We can agree to disagree on Brexit. 😉 )

  • 94 Simon December 14, 2018, 4:11 pm

    @Investor – “You can also have a standard non-ISA RateSetter account. Depends what you want to use this vital tax wrapper for”

    I understand the Ratesetter ISA is of the newer Innovative Finance ISA type which can be held in addition to the others (cash, stocks & shares etc) so you can have one in addition to one of each other type (although the overall year limit remains the same as far as I know).

  • 95 The Investor December 14, 2018, 4:23 pm

    @Simon — Yes, quite right. Perhaps I should have written “Annual allowance”. Will ponder an edit!

  • 96 Peter February 25, 2019, 12:22 am

    Hi,

    Just to let you know, I used your offer and invested in RateSetter for a year. Cheers!

  • 97 Tony March 20, 2019, 1:32 pm

    I took advantage of this promotion just under a year ago, following Monevator’s advice and link. I invested £1000 (I’m not rich) for 1 year at market rates (not the high risk ones). I think they were about 4% at the time.

    I’ve just received an email to say the matched borrower has repaid their loan early so my capital and interest has been credited to my account earlier than expected. I’ve been repaid £1007.51. I’m still not rich, but that’s an amazing return over just short of a year and I’m still due the promotion bonus on the 1 year anniversary.

    As Monevator advised, it’s not as safe as a cash ISA etc, but the return is so much more than 1.5-2% pa ignoring the promotion.

    My main concern for the next few years is the likely downturn as people worry about Brexit (even if it doesn’t happen) which could impact the P2P business model.

  • 98 Tony March 20, 2019, 8:18 pm

    This is an edit to my previous post.

    Apparently my maths is poor: a friend pointed out I’ve earned less than 1% over the year without the promotion, so I should be underwhelmed

  • 99 Alan Stratford March 21, 2019, 10:58 am

    Please note that Ratesetter’s statements on their PF are vastly overstated. I.E. You state:

    “At the time of writing, Ratesetter says:

    Future losses would need to be 1.23 times larger than it predicts before investors’ interest income starts to be at risk.
    Future losses would need to be 2.48 times larger than predicted before investors’ initial investment starts to be at risk.”

    To be correct, this should say:

    Future losses would need to be 0.23 times larger than it predicts before investors’ interest income starts to be at risk.
    Future losses would need to be 1.48 times larger than predicted before investors’ initial investment starts to be at risk.

    Also note that the PF position has now deteriorated further!

  • 100 The Investor March 21, 2019, 11:23 am

    Hi — Well we could debate which wording is correct. 🙂 But anyway RateSetter seems to have changed its own wording on credit risk, too. I have updated the copy above with a direct excerpt from its discussion of the provision fund.