Real rate of return on P2P investment

zmsc1

Wanting somewhere to invest a few thousand, I put a small amount into Zopa, to see how it works.

The quoted interest rate is around 5%, which sounds much better than any current ISAs are offering. But actual returns appear to be much lower. I think it's because the rate quoted by Zopa (and others) is the APR at which the money is lent out, which is not comparable with the rate paid on a savings account.

As far as I can see, I'm getting about the same return I'd get on a savings accounts at 2.5%! Have I seriously misunderstood something, or are the P2P platforms comparing apples with oranges?

ChesterDog

How much did you put in in one go? How long did it take to be lent out entirely?

To get the headline rate, all of your money must be lent out all of the time at that rate or more.

In practice, once it's all let out you can expect a smidgen less than the quoted rate, but better than you have indicated. I suspect it took a while for all the money you deposited to move out to borrowers.

For what it's worth, last time I looked, Ratesetter's rates (very much the same business model now) were a little better than Zopa's.

zmsc1

Thanks, the answer lies in re-lending the money!

jimjames

For a few thousand why are you not using tsb where the return is guaranteed at 5%?

SHARES

4% or less after tax , But as you say, no risk involved

PeacefulWaters

SHARES wrote: »

4% or less after tax , But as you say, no risk involved

Income from Zopa is taxable too.