As the Founder of SIPPclub, having helped many of our Members lend millions of pounds of SIPP money on peer-to-peer platforms, I couldn’t resist RateSetter’s Limited Offer to earn around 14 per cent in one year on my cash.
With interest rates remaining pitifully low, it’s well worth taking a look at the Limited Bonus Offer from RateSetter, to effectively collect a 14 per cent return on your cash.
RateSetter is one of the world’s largest and most respected peer-to-peer platforms, connecting lenders and borrowers via its beautifully simple online platform, cutting out the banks in the process.
Lenders like you and me can secure attractive returns of around 3.5 to 6.1 per cent, over terms of one month to five years. And borrowers can get a loan from 7.9 per cent, which RateSetter says is competitive with banks.
To attract new lenders, RateSetter is currently running a time Limited Offer which pays a £100 Bonus to anyone depositing £1,000 for at least a year. That’s A 10 Per Cent Bonus in addition to the interest you’ll earn on your money. A return of about 14 per cent over one year.
Many banks offer similar bonuses to new customers, but they often insist you switch your banking to secure the incentive. It can be a real hassle, especially if you have direct debits and standing orders to switch. Not so with RateSetter.
RateSetter claims you can open an account and fund it in five minutes. Actually, it took me just under three minutes to set up my account and transfer £1,000 from my current account.
What was even more impressive is that two minutes later, my money had been matched and my bonus and my potential interest was confirmed. Impressed? I certainly was.
RateSetter’s numbers are staggering. Since its launch in 2010, RateSetter has matched £1,091,216,468. The average number of borrowers per lender is 41. There are 34,973 individual lenders and not one of them has lost a single penny.
That’s due in part to effective underwriting of the loans, security from borrowers worth £152 million and a Provision Fund, currently standing at £17,336,860. The Provision Fund reimburses lenders if a borrower misses a payment. If a loan goes into default, it takes over the loan and repays the outstanding capital to the lenders. It’s no guarantee for the future, but it is reassuring and a remarkable track record.
It’s not just people like you and me who’ve lent money to RateSetter. In 2015, Neil Woodford, the highly regarded fund manager who famously stopped investing in banks, led a £20 million funding round into RateSetter.
Whilst there’s no doubt the returns from RateSetter are attractive, it’s not the same as investing in banks and building societies, where your money is protected up to £75,000 per institution. With RateSetter, there’s no such protection.
As a result, you shouldn’t view RateSetter as an equivalent replacement to bank and building society deposit accounts. Lending money to individuals and businesses is not without risk. So if RateSetter’s underwriters get its analyses wrong, or if we have a major recession, defaults could rise and the Provision Fund may not be able to cope. However, it's fair to say there's a huge margin before you might lose even a small amount of your money.
In January 2016, RateSetter indicated the default rate was 1.8 per cent. The Provision Fund can cope with defaults up to 3.2 per cent. If defaults rise to 11.46 per cent, RateSetter projects lenders will get their money back, albeit with no interest. And if defaults hit 20 per cent, RateSetter calculates lenders would only lose 8.5 per cent of their capital.
To put this into context, the default rate at the height of the credit crisis in March 2009 was 5.5 per cent. And if you had money invested in the FTSE 100, in the first six weeks of 2016, you’d have lost 8.5 per cent of it.
As soon as you step away from bank and building society deposit accounts, you inevitably accept a degree of risk. But when you compare the interest rates on offer, and the £100 bonus, this is one step you should consider taking. I, for one, am glad I did.
I urge you to do the same. Not just to earn a handsome return on your cash. But because it'll show you the potential of peer-to-peer lending, illustrating why so many people are diversifying some of their SIPP money in this way.
The RateSetter numbers quoted above are correct at 11 March 2016.
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Crowdfunding And Peer-To-Peer Risk Warning
When a platform has been assessed and approved by a SIPP or SSAS operator, this does not imply that any loan or investment opportunity is endorsed in any way. A SIPP or SSAS operator's due diligence review is limited to ensuring the processes and procedures of the platform are in line with both FCA and HMRC principles. It's entirely your responsibility for carrying out your own due diligence on any loan or investment opportunity before agreeing to lend or invest your pension money on a platform. As a SIPP or SSAS operator will continually review platforms from a regulatory perspective, it's possible for a platform to become 'unapproved' if something changes.
With peer-to-peer lending, your capital is at risk if you lend to individuals and businesses. You may lose some or all of the capital lent if the borrower defaults and is unable to meet its liabilities. Historic loan default rates are not necessarily indicative of future default rates. In addition, lending is an illiquid investment, which means you may not be able to access the capital you lend for the duration of the loan period, even if the platform offers a secondary market. Investing in any business involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Crowdfunding is generally targeted at investors who are sufficiently sophisticated to understand the risks and make their own investment decisions, based on their knowledge, experience and financial capacity. Neither crowdfunding nor peer-to-peer lending is covered by the Financial Services Compensation Scheme. The tax treatment of your investment is dependent on your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of crowdfunding investment or peer-to-peer lending, you should consult a suitably qualified independent financial adviser.
As SIPPclub neither advises on, nor arranges, nor recommends specific investments or strategies, we're unable to say whether a SIPP or SSAS or any investment within it is right for you. Ultimately, it’s your money and your decision, and you should only proceed once you're satisfied you've undertaken sufficient due diligence. If you need advice, you should speak to your trusted adviser, or you could find a local adviser from Unbiased.co.uk. Alternatively, we'd be pleased to introduce to a suitably qualified independent financial adviser.
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