Re: Better than Premium Bonds ?
Yep Peer-to-peer lending is the way to go.
Ratesetter is very good for those who want good security, very low risk but decent interest rates.
The principle is extremely simple.
Instead of you being the victim of banks exploiting you for profit, YOU get to be the banker instead.
You lend your money out to other people who are looking for loans. Like you, those people don't want to pay exorbitant interest charges to the banks so they come to companies like Ratesetter for loans.
So Ratesetter just acts as a middleman. They match your money and that of all lenders, to the loans that other people want. It's kind of satisfying.
You decide what specific interest rate you want to lend your money out at, and IF there are people out there wanting to borrow money and are willing to pay that level of interest then your money will be matched to their loan requests.
You choose how long you want to loan your money for, 1 year or 5 years and you decide your interest rate.
The system works simply on a "supply and demand" basis. If you specify an interest rate of 10% then you won't find a match with borrowers because borrowers know what % the banks will charge them. So supply and demand on both sides creates a market and there ends up a general interest rate range in which you can get successful matches.
The rates fluctuate so if you sit and watch it for a few weeks you can pick spots where people are willing to pay more interest.
I selected around 5% for 1 year lending and have most of my cash at rates of 4.9%, 5%, 5.3% and so on. Currently the 1 year rates are down at 3%-4% so I was fortunate to pick my spots and wait for matches.
You get your money paid back at the end of that 1yr period plus the interest it has earned.
There are many Peer-To-Peer lending companies but Ratesetter is somewhat unique because it has a special money pot which it maintains. If any of the borrowers default on their loans (which would ordinarily leave you out of pocket) then this money pot, called the Provision Fund, pays out the money. The net result is no-one ever loses out and as Omah says, no-one has ever lost out with Ratesetter.
This is still a tiny amount of risk and that risk is purely concerned with a catastrophic event like another global financial collapse which might see the majority of borrowers all defaulting at the same time. In such a scenario the Provision Fund wouldn't be big enough to cover it all even though it has £millions in it.
In the end then Ratesetter offers ordinary folk like us a way to lend out our money to others at interest rates that are better than banks and lets us do so with very minimal risk.
Other P2P companies don't have a Provision Fund, so there is more risk and a level of borrower defaulting has to be taken into account, but as a consequence the overall interest rates are much higher. Horses for courses.