peer to peer savings account

hello11

hi,

has anyone tried any of these eg funding circle,where you lend your money to businesses in this case and get upto 9%gross interest?

The main worry is what happens if the business you lend to or the company you do it through goes bankrupt will you get all your money back?

would be helpfull if anyone has first hand experience of lending their money out this way.
answers would be appreciated.

innovate

tons of MSE posts about funding circles
https://www.google.co.uk/search?as_q=&as_epq=funding+circle&as_oq=&as_eq=&as_nlo=&as_nhi=&lr=&cr=&as_qdr=all&as_sitesearch=forums.moneysavingexpert.com&as_occt=any&safe=active&tbs=&as_filetype=&as_rights=

psychic_teabag

see also the zopa forums at http://talk.zopa.com : the 'chat' section has threads on the other sites.

Jonbvn

It is a misnomer to call them savings accounts. A closer analogy would be stocks and shares, where there is downisde risk.

If you need more advice on P2P lending I would suggest you post questions on the ZOPA forum, which is the longest running and the biggest.

MrOrchard

I use Zopa - only a small amount to see how it performs, but I'm currently up over 8.5% before tax, even with a couple of defaulted debtors. The money has been in there 13 months.

MarkFromCornwall

hello11 wrote: »

hi,

The main worry is what happens if the business you lend to or the company you do it through goes bankrupt will you get all your money back?

The short answer is no, you could lose all the money that you lend to that business. However, Funding Circle (or their agents) do chase defaults (in many cases the directors will have given a personal guarantee) and you may get back some or all of your money. I had one insolvency where I eventually got my money back and I have another where the outcome isn't looking promising. Overall the money I'm making on the rest of the loans more than makes up for the occasional default. If you do go with Zopa or FC etc then I recommend you spread your money across a large number of borrowers so any single default will not hit you too badly. Regarding the question of FC or Zopa themselves going bankrupt, they do seem to have considered this and have their clients money kept separate and you shouldn't lose it.

marathon_man_3

I believe that, particularly in this sort of investment, is that you should only invest what you can afford to lose. Your total money is most definitely at risk.
I feel the same about corporate bonds as well which, in recent times, have offered far better rates than available with banks and building societies.

jamesd

The peer to peer lending is a high risk investment activity. Suitable for only up to 5% of your investable assets and completely unprotected by the FSCS. If you want lower risk and still a good prospect of high returns you might consider funds, many of which are paying in the 6-8% range and come with FSCS protection, though not a guarantee that the capital value will not fall. They can also be held inside a stocks and shares ISA so they pay out with no income tax to pay on the money, nor any need to tell HMRC about it.

If you want higher risk and substantially higher potential interest - 18%+ - you might investigate Isepankur. The legal system there seems somewhat faster at handling those with payment trouble but you get foreign exchange risk because the lending is in Euros. My view is that as Eurozone troubles ease the Euro is likely to rise against the Pound, to the benefit of lenders there, but it is still a risk to be taken into account. If you want to fund an account there, CurrencyFair or TransferWise might be useful and both are known to work with the site. Here are some comparative amounts:

£100 sent, CurrencyFair 120.65 Euro TransferWise 123.70 Euro
£1,000 sent, CurrencyFair 1240.16 Euro TransferWise 1244.10 Euro
£5,000 sent, CurrencyFair 6215.76 Euro TransferWise 6218.03 Euro

UK banks might both charge a few Pounds and offer bad exchange rates.

innovate

jamesd wrote: »

If you want higher risk and substantially higher potential interest - 18%+ - you might investigate Isepankur.

Who are they lending to? In Euroland, bank loans can be had at well below 10% AER - why would people, who are able to repay their loan, pay twice as much for a loan?

jamesd

In parts of the Eurozone. Not in Estonia. Bank personal loan rates there for those with excellent credit scores are apparently in the 25-36% range.

jamesd

There are two possible disadvantages to using isePankur that you should know about, I'm still checking them:

1. It will produce foreign income. This means that you will be required file a tax return even if you don't have to already. You will be responsible for telling HMRC about the need for a tax return.
[STRIKE]2. Interest is normally calculated at the exchange rate when it is added to your account. You can expect to receive at least one payment every day, quite possibly many more. It might be impractical unless isePankur can help with the work.

So I withdraw the suggestion to consider isePankur until it is more clear to me how practical complying with UK tax law will be.[/STRIKE]

After more checking, you can choose which of the possible exchange rates to use when working out what to put on your tax return. Can use the one at the time of each transaction, or some average and HMRC supplies some averages that can be used, including one for a whole year. So it's practical to do the tax things even for the frequent small interest payments you can get with P2P.