Peer To Peer Lending? – How to Survive Rate Cuts

The United Kingdom stays locked in deflation and National Savings cuts the rate on its cash ISA (Individual Savings Account).

According to the latest Consumer Price Index, prices fell by 0.1 per cent in the year to October.

This caused the treasury-backed National Savings & Investments (NS&I) to offer some respite through its Direct ISA paying 1.5 per cent. But the rate was reduced to 1.25 per cent on 16th November.

The current research conducted by MoneyFacts.co.uk shows that most banks and building societies are now cutting rates.

Last month there were 43 rate rises − most of which were small, against 58 cuts, and some as large as 0.54 per cent.

Rachel Springall, an expert in finance, has spoken regarding the current issue and she said £10,000 placed in an average savings account in 2010 would, after basic rate tax, be worth just £8,877 today in real terms.

Springall added: “Savers who want a better return need to act fast because market leading rates don’t last long.”

“Virgin Money reissued a market-leading two-year fixed rate cash ISA last week, only to withdraw it two days later,” says Springall.

Virgin Money offers a market-leading variable rate cash ISA paying 1.56 per cent, but allows only three withdrawals per year.

However, as banks compete for customers, some of the best rates are now available on current accounts.

Springall stated, “The TSB Classic Plus account pays 5 per cent on balances up to £2,000, which is great for savers with small pots.”

Savers who take out a current account with First Direct, HSBC or M&S Bank can also access the regular savings account paying 6 per cent, but for only one year.

Another alternative for savers is the RCI Bank, a French-owned challenger bank, which pays a top rate of 1.65 per cent on its access Freedom Savings Account. RCI Bank offers a three-year bond paying 2.70 per cent on a minimum of £1,000.

“You can protect yourself against further cuts with a fixed-rate account.” says Anna Bowes.

“Shawbrook Bank pays a market-leading 2.15 per cent over one year, 2.45 per cent over two years and 2.70 per cent over three years, all on a minimum £1,000.”

Aside from that, there is an increasingly popular funding option that could help savers get the best out of their money − Peer-to-peer lending. P2P lending lets you secure more than 5 per cent!

 Peer To Peer Lending? – How to Survive Rate Cuts

Peep-to-peer lenders such as Zopa.com, RateSetter.co.uk and Stratosphere (please tour this website) arrange and facilitate money from savers and lend it to approved borrowers − giving both parties better rates and cutting out the banks; the middleman!

But Damien Fahy, of cash advice site MoneyToTheMasses.com, says savers will have to accept more risk if they want a higher return.

“Your money is not protected by the Financial Services Compensation Scheme (FSCS) so if things go wrong you could lose your money.” Fahy warns.

Sticking to established and FCA authorised P2P lenders which has the most rigorous safeguards is better than rather any riskier crowdfunding platforms providing little to no security.  Rates will vary but one can expect healthy 5 per cent plus for savers and in our case, the investor’s funds are further protected with a  first-charge security (normally a property).

You could also invest in a corporate bond fund that invests in a couple of bonds issued by companies to raise funds for their extension but again, what security and protection will investors be given?

Others are also considering investing in a BUY-TO-LET but many are now planning to sell up.

Adrian Gill, of Your Move and Reeds Rains, said one in 10 buy-to-let landlords is now considering selling up. On the other hand, half of those blame their decision on the tax crackdown and strict regulations on property rentals.

“The tax changes appear to be making investing in buy-to-let less attractive with smaller profit margins in the future.”

However, investing via a peer to peer lending firm using property as the asset could be the new alternative which will allow ex landlords to mitigate the onerous tax changes being introduced over the next 4 to 5 years.

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