"We used peer-to-peer to boost our savings"
Moneywise readers on P2P lending
Following our September cover story, in which we looked at the main P2P lending firms and offered our top picks, we asked readers of Moneywise’s email newsletters to get in touch to share their experiences – good or bad – of using P2P. Thank you to everyone who emailed us. Here’s a selection of your comments.
“Over 10 years there have been defaults”
Lynne Martin says: “I’ve been using P2P lending since 2006. Zopa was the first out of the block and I invested my whole bonus of £2,000 into it. Everyone thought I was mad and would lose my money. I pointed out to them that I could also lose it on the stock market.
“I could see then that it was an obvious step forward in technology, having written many ad hoc programmes during my time in banking. This idea of cutting out the middle man was a game changer, only no one believed it at the time.
“Zopa is still going strong, having survived the credit crunch and various other regulatory hoops over the years.
“My average rate over the 10 years is probably about 6% to 6.5%. I also lend via Funding Circle, although not as much, as I perceive this to be more risky as it lends to businesses, builders and property developers. However, the rates are a bit higher to compensate for the risk.
“There are lots of new contenders to choose from but I still like Zopa the best as it has the mileage. I use my Zopa income as a pension – and draw it down when I need to for the things that I want or need. When I don’t need anything the money rolls over and adds to the pot until I need it.
“I’ve been lending my money directly to people who mostly have good credit records. There are defaults, but my average rate after bad debts is still much higher than I can obtain from any bank or savings bond.”
“I’ve only had one bad debt”
David Miller says: “I dipped a very modest and tentative toe into P2P lending about 18 months ago, as some of my investments were offering poor returns following the fall in interest rates. I initially only invested £2,000 via the Funding Circle platform and, following its advice, spread my investments across a number of companies with different risk ratings.
“To date, I have loaned to 17 companies across many different sectors and averaged an annual return of 8.9%. I have had only one bad debt (which was partially recovered) and my net return includes this small loss.
“Overall, I am very pleased with this alternative form of investment. It is riskier than more conventional and safer investments, but my experience has been a positive one and I will increase my investment in the future.
“However, I would always stress that this must be part of a balanced portfolio of investments. In my case, this includes both cash and stocks and shares Isas, shares, premium bonds, property, and now P2P lending.”
“I worry that my money will be lost”
Mark Tucker says: “I have invested thousands in numerous firms, looking to spread the risk. I use Zopa, RateSetter, Lending Works Wellesley and Saving Stream. All these firms pay interest way above traditional savings accounts and are easy to use. My only concern is whether my money would be lost if any of the firms went bust.”
I have had mixed results”
Terence Pruce says: “I have used this form of investment for several years with mixed results.At first I was with Zopa, which was not successful, as I was liable for borrowers’ bad debts of which there were several so my net return was minimal. I am now with RateSetter, which has built-in safeguards. I have substantial investment with it and have no complaints. These days, interest rates have dropped substantially though.”
“I wasn’t getting a return elsewhere”
Pamela Denny, 60, (pictured above with her grand-nephew) works part-time as an HR manager and is looking to retire in the next year or two. She started investing in peer-to-peer (P2P) lending 18 months ago when she had a longer- term investment that matured.
“Due to the fact that interest rates are so low, I just wasn’t getting a return elsewhere,” she says. “I did want to feel that my money was doing some good. I had a slightly altruistic view of helping people be entrepreneurial through the P2P platform arena.”
Pamela holds her money with five different P2P platforms: she started with RateSetter, followed by Zopa, Lending Works, Funding Circle and Wellesley. She put £5,000 to £10,000 in at a time and then built it up to about £30,000 in each.
“The reasons I chose to go with everal platforms at the same time were two-fold,” she says. “First, I didn’t know how to choose a platform and second, although some platforms have back-up funds that they use to cover payments in default, I was concerned about the lack of security. I don’t think they are as risky as investing in the stock market, but P2P investments aren’t covered by the Financial Services Compensation Scheme, so I thought it was better to spread my risk.
“If I lost this money, I wouldn’t lose everything and that’s very important. I also have a deferred final salary pension, a self- invested personal pension (Sipp), and a stocks and shares individual savings account (Isa). I hold between 20% and 25%of my investment portfolio in P2P.
“Overall, I’m getting between 4% and 6% interest on my money – that’s a heck of a lot better than anywhere else.”
“I’ve been able to gain a higher return with higher risk”
Clive Ketteridge says: “I’ve been using Zopa since 2008 and it’s returned over 5% a year, although within the past year projected returns have reduced.
“I’ve been using Funding Circle for about two to three years and have been able to gain a higher return but with a higher risk. I can allow the platform to choose my loan parts or decide for myself. I do both. It’s quite enjoyable to choose yourself and you can see you are helping a real organisation, usually a small business, to grow.”
The returns seem to match headline rates”
Garry Scott says: “I’ve been using Funding Circle, RateSetter, and Zopa for about 18 months on three- and five-year terms, initially investing £5,000 with each. The returns seem to be matching the headline rates at 4% to 5%. That’s similar income returns to equities, without maybe the risk or growth, but so far so good.”
What is peer-to-peer lending?
P2P websites pair savers with borrowers, offering a place for the two groups to come together and agree lending arrangements. This means savers are in fact ‘lenders’, lending their own money in the form of a deposit. While you can get higher rates than putting your money in a savings account in the bank, there are much higher risks involved. If a borrower doesn’t pay back their debts, most P2P companies pass that loss directly on to the investor.
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Final salary pension
A defined benefit pension scheme is one where the payout is based on contributions made and the length of service of the employee. A typical scheme would offer to pay one-60th (0.0168%) of final salary (the one you’re earning when you finally retire) for each year of contributions to the scheme (even though these years were probably paid at a lower salary). Someone retiring on a final salary of £30,000 who had been a member of the scheme for 25 years would receive a pension of 42% of their final salary (£12,300 a year before tax). Sadly, many companies are winding up their final salary schemes or closing them altogether, meaning pension benefits accrued after a certain date (or those available to new employees) may be on a less generous money purchase basis.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
A form of National Savings Certificate, premium bonds are effectively gilt-edged securities: you loan your money to the government and, in return, it pays you for the privilege with a guarantee it will return your capital at a specified date. Where premium bonds differ is that the interest payments (currently 1.5%) are pooled and paid out as prize money and you can get your cash back within a fortnight, with no risk. Launched by Chancellor of the Exchequer Harold Macmillan in his 1956 Budget, every single £1 unit has the same chance of winning and in May 2011, 1,772,482 winners (from a total draw of 42,539,589,993 eligible bond numbers) shared £53,174,500. The odds of winning are 24,000 to 1 and the maximum holding is £30,000 per person but it remains the only punt in which you can perpetually recycle your stake money.