Tony Byrne’s View 31 July 2017
I was recently sent a business bank charges statement from our bank which is a well-known High Street bank. I noticed the highest interest rate on offer was 0.10% even on balances of £1m or more! However, if our business account were to go into an accidental overdraft then the unauthorised borrowing charge is an eye-watering 29.9%! Now I know that banks make a turn on interest rates but a 30% turn is truly usurious.
The question is do you or your business have a large amount of money on deposit of more than £100,000? If so are you earning a similarly pitiful low interest rate on it of as low as 0.10% a year? Well the good news is that you really don’t have to put up with it any more. So why is this?
Ever since the company Zopa first introduced the idea of peer to peer, P2P, lending in 2005 the concept has grown and grown to the extent that there is now a plethora of such products available in the UK.
So what is peer to peer lending? P2P is an online service which brings together both individual borrowers and lenders, bypassing traditional banks. Lenders get better interest rates than they would get from a bank and borrowers pay less interest than a bank would charge on a bank loan.
The downside is that such deposits are not covered by the Financial Services Compensation Scheme which protects bank depositors up to £85,000 per individual per banking group. However, borrowers are carefully vetted by being credit checked. Also the money lent is diversified by being spread over a large number of individual lenders so that the potential risk to each individual lender is very low. The default risk or risk of a borrower not repaying the loan is very low. Amongst the lending P2P lenders the default rate is reported to be between 0-1.5%.
The benefit to investors is that interest rates of 5%-7% can be earned which sure beats 0.10%! Some P2P lenders even offer no notice accounts! We have access to many of these schemes which form part of our Dynamic Cash Management System. So if you or your business are looking for a decent return for your money why not contact us for further advice? You know it makes sense.