Peer To Peer Lending: One Smart Choice for Your Savings

In modern times, interest rates have been very low. This has been a major concern for savers and investors as they struggle to find returns that will go in parallel and keep pace with inflation.

Deciding where to put your savings or investments is more confusing today since there are a lot more options offering competitive interest rates but this gives an advantage to savers and investors as it gives them more choices.

Individual Savings Accounts (ISAs)

Individual Savings Accounts should be the one that you must consider first as returns are tax-free.

In the 2015/2016 tax year, you can save up to £15,240 into a cash ISA. Alternatively, you can save a portion of this into stocks and shares if you are ready to accept a level of risk.

An important thing to note when choosing an ISA is to check how easily you can access your money. Several cash ISAs are easy access accounts, so you can withdraw anytime you want. While some are fixed rate accounts which don’t allow you to make withdrawals until the fixed term ends.

You may transfer your ISA savings to an alternative ISA when you find higher returns elsewhere. However, you need to do this by requesting a transfer form from your new provider. If you fail to do that, your savings will lose their tax-free status.

Easy Access Savings Accounts

If you have already used your cash ISA allowance this year, and you would want to have easy access to your account, then this might be the right choice for you.

Easy Access Savings Account is the type of account that allows you to make withdrawals at whatever time you want.

Fixed Rate Bonds

If you want your account to be secured for a fixed period, and you’re sure that you are not going to make withdrawals from your savings, then Fixed Rate Bonds might be perfect for you.

These accounts usually pay higher interest rates than easy access accounts. As the name suggests, these accounts require you to leave your money untouched during for a fixed period.

However, if you do need to take money out during the fixed term, you typically have to forfeit some interest.

Peer-To-Peer Lending (P2P)

Peer-to-peer lending is made possible by peer-to-peer websites that match and connect you with people who need to borrow money.

You could consider lending them (borrowers) for a set time frame, and in return they pay you higher rates than you can normally achieve from a bank or building society savings account.

One advantage of P2P lending is that you don’t need to put up large sums of money since most of the peer-to-peer schemes accept as little as £10.

Conversely, peer-to-peer lending is not covered by the Financial Services Compensation Scheme (FSCS), which will pay out in the event that your bank or building society goes bust.

But peer-to-peer lending platforms typically offer their own ‘provision funds’ which will refund you if borrowers default on their loans to you.

Current Accounts

Most current accounts now pay higher returns than that of easy access savings accounts. But these high rates are often only offered on balances up to a certain limit. This makes a current account a good preference for your first part of savings.

Check the small print carefully to ensure you are qualified. A lot of current accounts oblige you to pay in a set amount each month to qualify, and you are typically required to set up a couple of direct debits from the account too.

Some current accounts also pay cashback on your everyday spending — this will give your overall returns an added boost.

Whichever home or homes you pick for your savings, it is ideal to spread them across a number of different providers because the FSCS will only pay out up to £85,000 per person per institution in the event your savings provider goes bust. However, this limit dropped to £75,000 per person per institution (which started on January 1, 2016).

Why not subscribe to my FREE eBook ‘Be The Bank’ which can be found (to the right) on our peer to peer lenders page.