Beat the bank's lousy rates

Published by Cathy Adams on 25 November 2010.
Last updated on 23 August 2011

handing over cash

Banks no longer have a monopoly on our personal finances. Starved of any yield from their savings, consumers are now looking to social lending websites as an alternative way to boost returns on their cash.

These sites are essentially online loan markets, connecting people who want to borrow from and lend to each other.

For many people, peer-to-peer site Zopa is now a recognised name on the market, although in a recent Moneywise poll, 48% of respondents said they hadn't heard of Zopa and only 10% had used it. However, that's set to change as new social lending sites hit the savings landscape.

YES-secure launched back in June, while the newest kid on the block, RateSetter, launched in October.

All three sites are based on the same premise - to enable users to borrow and save money without the middleman. Zopa is the classic peer-to-peer lending site; YES-secure incorporates social networking, so users can invite and chat to 'connections'; while RateSetter matches users based on a mutually agreed interest rate.

A promising start

The evidence of their success speaks for itself. Since its launch, RateSetter has lent over £600,000 to borrowers, and more than 1,500 customers have registered with the site in just over a month - proof that consumers are turning their backs on traditional saving and borrowing vehicles.

The increase in popularity can be attributed to the high rates of return. Over the last 12 months, Zopa boasts an average return of 8.1% before tax. When you compare this to an average return from a savings account of 0.79%, according to Moneyfacts, social lending starts to look much more attractive.

"Whether you're a saver or a borrower, social lending offers savers better returns and borrowers cheaper loans," says Rhydian Lewis, CEO of RateSetter.

It's worth pointing out though that social lending comes with a risk - if one of your borrowers fail to pay back their loan you could find yourself out of pocket.

"The industry is generally well-perceived, but the amounts lent across the industry are still small when compared with the banks.

"However, with interest rates at an all-time low, this is a fantastic opportunity for social lending to fill the void," Lewis adds.

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