3 months with Ratesetter ISA... not sure it's been worth it?

liamcov

I opened an ISA account just over 3 months ago (the offer of putting £1000 in and getting some cash back down the line, can't remember exactly how much).

I went for the max product (4%) and have set my 'going rate' for reinvestment at between that and 5% over the 3 months (currently set at 4.5%).

However, my total money stands at £1,008 - just £8 more than I put in just over 3 months ago. 

So I'm not sure (a) if it's been worth it and (b) whether to put any more money into it before the end of the tax year or other ISA products. Does anyone have any feedback or suggestions about this?

Alexland

I did RateSetter at the minimum for a year to get the bonus but my view is the likely ongoing P2P interest rates are not worth the risk of 100% capital loss. I prefer long term S&S investments especially as the market is lower at the moment.

liamcov

Is the risk that high considering they have the fund set up in case things go wrong?

I'm not that bothered about that actually as I know the risk involved, I'm mainly thinking about the low returns for it and whether it's better investing elsewhere...

Gary1984

If your £8 return is repeated for the next 3 quarters then that's a 3.2% return. Lower than the target but that's not to be unexpected given current markets. I expect it will get worse though. If you can escape with anything like the original capital you leant out then you'll have done well. 

masonic

There have been no losses of either interest or capital for investors so far. The low return is entirely a function of you choosing your own rate to lend. If you choose a rate higher than the "going rate" (currently 4%) then your money will take longer to invest/reinvest and you'll earn no interest while your money is waiting to be matched. Had you not set your own rate, your return so far would have been closer to £10.

liamcov said:

Is the risk that high considering they have the fund set up in case things go wrong?

The provision fund will cover capital and interest when borrowers default on the loans during normal circumstances. It's done exactly that so far. However, by design investors will lose interest and possibly also capital during adverse economic circumstances like the ones we find ourselves in now. There is currently a run on the RS platform with >£10m having been withdrawn by investors in the last couple of weeks, and a lot more in the queue for withdrawal. RS is in a precarious position, because if it allows funds out too quickly it will have none available to make new loans, which would threaten the survival of the company itself. Should RS enter administration, all bets are off as to how much investors would lose.

Alexland

liamcov said:

Is the risk that high considering they have the fund set up in case things go wrong?

As masonic detailed the provision fund is there to cover a few bad debts but if it gets exhausted or their business model breaks down then we have seen P2P platforms get into hot water very quickly.