/ Money

Alternative saving options – which one takes your fancy?

Trying to find a decent interest rate for your savings is like looking for the perfect partner. I think the rates on mainstream savings accounts and cash Isas are about as appealing as a date with an elephant in a dress.

As I’m not really into that kind of thing, I’ve stopped looking in the usual places (high street banks) for the ideal investment to see if I can find it elsewhere.

National Savings and Investments, a bit like a lady with a friendly face and financially secure parents (HM Treasury, no less) are a safe bet, but the rates of return on their savings accounts, bonds and Isas are not as appealing as I’d like.

Taking a gamble with premium bonds is a bit like going on a blind date, because of the luck factor. Yes, I could hit the jackpot but, let’s face it, the chances are slim. And if I don’t win regularly in the monthly competition I run the risk of having my money eroded away by inflation.

Going out with your local credit union is appealing for a variety of reasons. But I know for a fact that my local branch is not yet big enough to pay out monthly interest rates on its savings account, so I’ll have to wait for an annual dividend. Even then it’ll only work out at about 1%.

Peer-to-peer lending – the perfect match?

As a result I’ve gone online to see if I can find the attractive and exciting investment I want. It comes in the form of peer-to-peer (or social lending) websites such as Zopa, Ratesetter and Funding Circle.

Websites of this nature allow people to lend or borrow from one another, as well as businesses. And (this is the bit I really like) the interest rates for all parties appear to be better value than those offered by high street banks and the alternatives mentioned above.

Looking at Zopa, which has half a million members who have lent more than £190 million between each other since its launch in 2005, the average rate of return (after charges) is 5.6%. It’s worth remembering, though, that the money you earn via peer-to-peer lending is not tax free and while higher rates of return are available across all peer-to-peer sites, with them comes added risk.

Does peer-to-peer lending catch your eye?

We’ve talked about the risks of peer-to-peer lending before. We’re worried that as more people struggle with their finances, the number of borrowers defaulting on their loan repayments might rocket which in turn means investors could be putting not just returns, but some of their capital, at risk. They are also unregulated.

The best advice I’ve had so far is to use peer-to-peer lending as part of a wider investment portfolio. So if you’re willing to take a chance, the higher rates of return are probably still appealing, especially when you consider 4.52% for a five-year fixed rate savings account and 4.5% for a cash Isa are the best on offer at the moment.

I’m still not sure whether peer-to-peer websites are my investment soul mate, but it’s easy to see why intrigued investors are giving them the eye. But would you go on a date with them?

Barryg says:
15 May 2012

I have saved with Zopa for around three years and have just two bad debts to date. I have an average interest rate of 6% Very satisfied with Zopa so far and expect to increase investment.

Steve says:
15 May 2012

I have invested a reasonably substantial sum with RateSetter over the last six months – the main difference for me is the Provision Fund which protects Lenders. I started slowly but I’ve received all the money I’ve expected and am getting about 4% with monthly access. In the last month I’ve started reinvesting into the longer markets. It’s simple and clean, the people are friendly and polite and it’s not a _____ bank!

Edward says:
9 March 2017

I am using Relendex – it is property p2p, earn c. 8% and MI for factoring at 5%

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The risk you take for a high interest rate is that your capital is not protected by the Financial Services Compensation Scheme. You could find it difficult to get your money backt quickly, or perhaps not at all, if a problem arose.