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Savers choose P2P over the high street

Low rates are prompting investors to choose P2P sites over traditional savings accounts
July 2, 2015

Low savings rates are sending investors flocking to peer-to-peer (P2P) lending sites, according to new research by Which, proving that the low rate environment is continuing to push investors further up the risk scale in a hunt for yield.

According to the poll of 5,000 customers, 77 per cent of members using the online lending platforms, which bypass traditional lenders by matching investors to borrowers, were motivated to invest because of the disappointing rates for savings on the high street.

RateSetter, one of the three main P2P sites, also ranked higher than Which's top-rated savings account for customer satisfaction with an approval rating of 80 per cent.

The research reveals the fast growth of the industry amid investor frustration with the rock-bottom return on traditional savings accounts, with new loans issued at a rate of at least £15m a day in the first three months of the year.

According to a February EY report, peer-to-peer business lending grew by 272 per cent between 2012 and 2014 across Europe and sites such as Zopa, RateSetter and Funding Circle are attracting high levels of business. The sites offer rates of between 3.8 per cent annual pre-tax returns on a three-year fixed term deposit in the case of Zopa and 5.6 per cent for RateSetter. This is much better than the 2.7 per cent AER available on a three-year savings bond from AgriBank, the top rate available on three-year deposits, according to Moneyfacts.co.uk.

But the high returns from P2P are not without risk and the lack of protection in the event borrowers default on their debts remains a worry for many savers. Almost half of Which members considering using P2P decided it against it due to the fact their capital was not protected by the Financial Services Compensation Scheme (FSCS).

RateSetter and Zopa have now both set up compensation schemes but unlike the FSCS, there is no cast-iron guarantee you would be paid back as the pots are finite.

With P2P loans to be added to the list of investments held in Isas this year, popularity could continue to increase.

CONTACTS:

www.ratesetter.com

www.zopa.com

www.fundingcircle.com