Peer-to-peer lending vs zombie bank savings accounts

by Simon 6 Replies latest social family

  • Simon
    Simon

    Many of us are either lazy or uninformed when it comes to savings and investments, often both, and of course the JW past often meant we didn't put as much planning into our financial future as we should have done.

    It's often difficult enough to save anything in the first place, never mind to then track how it performs and the major high street banks seem to take advantage of this by often offering terrible interest rates to savers (but called "high interest accounts") and doing the bait and switch where new accounts offer the highest rates to entice new customer which then drop to practically zero once they have your money.

    Who has the time to keep up with all that?

    If you are getting less than the rate of inflation on your savings then you're really losing money - it's literally being taken from you by the bank and lent out at much higher rates and they then keep the proceeds to pay out to their shareholders rather to you - who's money they used!

    Now though, there are alternative "peer to peer" lenders that allow you to lend (almost) directly to other people. They get loans at attractive interest rates and you get much higher rates of interest in return. There is still someone in the middle to organize things, perform credit checks, chase up bad debts etc... but they take much less than the banks do.

    I've used a couple in the UK and have got an average of around 6% ... way higher than the low 2%-2.5% that a bank savings account will offer for the same time commitment. It's actually a decent return for any investment and a decent way to diversify so all your investment isn't in stocks and shares / mutual funds.

    Some let you set your own rate (and balance speed of lending vs returns), others provide a system with a guaranteed rate. All now appear to be better covered by their own protection funds (but not under bank deposit schemes ... for what they're worth).

    If anyone is interested in trying them, here are some referral links to use:

    http://link.ratesetter.com/4oy7rsl (you'll get 25 GBP credit if you become a customer)

    https://www.zopa.com/member/caliban (you'll get 50 GBP if you lend out more than 2k)

    The Zopa site has an interest calculator to show you how your savings could grow vs with a bank but there's also a good compound interest calculator to use to put in any figures you want.

    Remember: compound interest + a higher interest rate = your bestest friends for a good retirement so don't delay, save something today!

    Happy lending and may your savings grow, wherever they may live :)

  • Simon
    Simon

    Oh, just noticed that the Zopa calculator doesn't show the typical bank account returns anymore for comparison.

    Just plug the numbers into the other calculator and switch between the peer-to-peer rate and your typicla bank savings account rate and see the difference after 10+ years - it's amazing / scary.

  • hoser
    hoser

    is there anything like this in Canada, I'd be interested in the borrowing part of it

  • Simon
    Simon

    I believe there was and I heard that there was a new one coming out but I can't recall what it was called - I'll try and find out.

    The other thing I've been interested in trying is the micro-financing for entrepeneurs in developing countries. It seems like a win-win if you make some money and at the same time help someone disadvantaged get a better deal than they otherwise would. Helping do some good is of course a geat 'feel good' plus.

    Anyone have any experience of this?

  • prologos
    prologos

    I believe people in developping countries are incredibly creative in these micro enterprise (tax free) dealings. like investors owning shares in a piglet and the one raising (feeding) it, gets double share when it gives birth to a litter or takes it's final walk.

    You would need a trusting closely knit community for this. More closely-knit and trust-worthy than the total kh population

  • Simon
    Simon

    Most of what I've read about relies on having a network of local operators to disperse the funds. Apparently they have a great record of people being hard working and wanting to repay their loans - you're just enabling them to get started (buying seeds, materials or whatever).

  • Simon
    Simon

    Anyone have any experience of these?

    http://www.kiva.org/

    http://www.worldvisionmicro.org/

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