P2P Lending – Maybe The Next Best Option for Investors and Savers
In an ideal world, savers and investors would always want to have easy access to their money and at the same time, get better returns. However, the very best easy-access accounts pay only around 1.5%. Therefore, it is necessary for you to be experimental if you want to boost your savings. But if you want to generate even higher returns, you may try other options like peer to peer lending.
High-interest current accounts and regular savers
High-interest current accounts and regular savers currently pay saving rates ranging from 1.25% to around of 3% (and in some cases, higher than 5%).
Nationwide’s Flexdirect offers the highest available interest rates on a current account. It pays 5% AER on balances of up to £2,500 for a year, provided that £1,000 a month is paid into the account. Moreover, it gives access to a linked regular saver, paying 5% and allowing deposits of up to £500 each month.
For those whose balances are at least £8,000, Santander’s 123 account is ideal despite the £5 monthly fee.It pays 3% on balances between £3,000 and £20,000 on condition that £500 is paid in monthly and there are two active direct debits. The account also pays up to 3% cashback on household bills, making it possible for the customers to get a greater return.
Other firms that offer high-interest current accounts as well as regular savers include TSB, Lloyds, M&S Bank and First Direct.
Fixed-rate bonds
Fixed-rate bonds are long-term bonds that pay a fixed interest rate over a set period. This option provides the depositors with little or no access to their funds. Fixed-rate bonds offer to pay around 3% for funds locked in for five years.
Susan Hannums of Savings Champion said: “Savers with larger balances may be wise to split the money between high-interest-paying current accounts, fixed-rate bonds and accessible accounts that can take advantage of future changes in rates.”
Peer-to-peer lending
Andrew Hagger of MoneyComms suggests peer-to-peer lending as an option to consider instead of investing into stocks and shares.
“P2P sits between cash savings and stock-market investing. It’s not 100% safe as cash is, but is not as volatile as stock markets, and potential returns are attractive”, he said.
“The main players in the market offer returns of between 3% and 6% on the back of loans provided to personal customers and small businesses.”
“You may find examples of 9% plus rates from some providers – but be wary, as a higher rate is an indication that the loans made by such providers are higher risk.”
Because P2P investments are not covered by the Financial Services Compensation Scheme (FSCS), we do not know how much money would be recovered if a platform goes bust.
On the other hand, there are platforms that offer contingency funds to cover losses in case some borrowers fail to repay — Ratesetter and Zopa.
ISAs
Cash Individual Savings Account is another option that’s worth considering, though not for the immediate benefits. Rates-wise, particularly with the introduction of the personal savings allowance, ISAs can’t compete.
Looking on the bright side, they do provide long-term tax protection. The tax-protection could be useful if the money is switched to equities, enabling a portfolio to grow free of capital gains tax or be used to generate a tax-free income.
All of the above options have advantages and disadvantages. Pick the option that works best for you. You can also try splitting the money and investing it into several accounts to minimize the risk. Better yet, seek expert advice to help you decide.
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