Savers and investors are having a rough time at the moment with interest rates being at historically low rates and inflation creeping up to over 5%. (Though we should of course be thankful that we are fortunate enough to be savers rather than borrowers)
I’ve spent far too long on the internet looking at moneysupermarket thinking somehow I’m going to suddenly find a bank or building society that will pay over the odds. It ain’t going to happen.
However I have found 4 very interesting sites that may help the saver and help borrowers and businesses too. Thats because none of them are banks and all of them offer an alternative to using the banksters. Ive started investing with all of them and I will be giving my views and updates on how they are performing in future posts.
My favourite at the moment as I think it offers the best risk to reward at the moment. It basically allows you buy a businesses’ invoices thus advancing them cash and charging a fee (typically 1.5% per 30 days). It’s very much like factoring except that businesses can offer single invoices and theres a lot less hassle involved.
Pros: Annualised returns 15%+
Cons: Its very new and only folks with £50k + are currently accepted.
Probably the best known, Zopa brings ordinary borrowers and savers together in an online peer to peer marketplace. Borrowers are classified according to a risk score and lenders make informed choices about what returns they want from lending to different classes of borrower. Risk is minimised by dividing up your loaned amount into lots of small loans so you could be lending to a hundred people, the idea being that you are less likely to get get significantly hurt by the inevitable few that default on their loans
Pros: Slick website with complete transparency of information about default risk, start with very small amounts
Cons: Lower rates (6-9% p.a.) although still potentially much higher than the traditional bank.
Funding Circle is like very much like Zopa except that its for lending to businesses. Theres a wealth of information about the companies you can lend to or you can set up automatic lending (like Zopa) based on interest rate criteria you choose
Pros: Slick and transparent website, one feels more in control of risk than on Zopa
Cons: Theres not much filtering of businesses and the rates reflect that theres probably too many investors and not enough companies on board yet
Thin cats is like funding circle but is much smaller with fewer opportunities however the filtering of companies is stricter hopefully meaning the likelihood of default is less plus the rates are quite a bit higher. This site feels a bit more ‘grown up’ than Funding Circle and would perhaps suit larger investments.
Pros: Greater due diligence, higher rates being achieved
Cons: Less opportunities and the site is not as slick as the competition
Anyway all the above have the potential for being business heroes in the brave new world of post financial crisis we all live in so I hope they will all thrive and provide us all with the liquidity and income that the banks (and governments) have so cruelly denied us.