The RateSetter platform launched in 2010 and offers investors the ability to lend funds in the form of personal, business and property loans. A large proportion of the portfolio currently relates to personal loans (73% based on 1 Jan 2019 data).
A brief summary of the RateSetter proposition is presented below along with a more comprehensive review and Q&A underneath. If you find my review useful and choose to sign-up after reading, I would really appreciate if you would sign-up via my referral link. The cashback offer available when signing up via my referral link is actually better than the offer you can currently get if signing up directly on the RateSetter website.
RateSetter - Personal, business and property loans.
P2P Platform: RateSetter
Summary of investment: When investing on the RateSetter platform, you are investing in personal, business and property loans. The platform has a provision fund designed to cover any unexpected interest and capital losses.
Cashback offer: £100 (10.0%)
Minimum investment required for cashback: £1,000
Time in business
Hands off investing
The below review/write-up is largely based on my own personal investing experience and interpretation of RateSetter terms. As always, please do your own due diligence before committing investment funds and consider whether investing in this platform is suitable for you based on your own individual financial circumstances.
I personally have funds invested in RateSetter’s P2P platform (see my current P2P investments here). All opinions are my own. RateSetter have not paid me to feature this article on my website; though should you sign-up via one of my referral links then I may receive a commission payment from RateSetter which does not impact the cashback or returns you personally receive in any way.
Where will my funds be invested?
When investing through RateSetter, your funds will be used towards personal, business and property loans. RateSetter is primarily exposed to personal loans (73%) with smaller exposures to property loans (17%) business loans (7%) and other lending businesses (3%) – data correct as of 1 January 2019.
How does RateSetter work?
You can invest your funds in a rolling account (no access fee if you wish to withdraw funds), a 1 year fixed account (0.3% access fee to withdraw early) or a 5 year fixed account (1.5% early access fee).
Note that the ‘last matched rates’ shown on the RateSetter website are higher than the rates shown when on the ‘Invest’ section of the dashboard.
In order to set your own interest rate, you need to click the ‘here’ link on the top right of the content (i.e. ‘Are you a RateSetter expert? Set your own rate here.’) after selecting your market and hitting the ‘choose your amount’ button.
Note that if you select a higher interest rate, it may take longer for your funds to be matched with suitable borrowers. The risk here is that your money may sit in your account not earning interest. However, the risk of not amending the interest rate is that you may not get the maximum possible return from your money
What is the minimum investment required?
The current minimum investment is set at £10, which means you can dip your toes in the water with a small exposure.
However, in order to qualify for cashback under the current offer, you will need to invest a minimum of £1,000.
How good is the investment performance reporting?
The RateSetter dashboard simply shows the amount of money in your account, the expected interest rate (i.e. the interest rate at which your funds are loaned to borrowers on the platform) and interest accrued. Further, you can see the lifetime returns your account has generated and can download tax statements to support your annual tax submissions.
What are the key risks of investing through the platform?
Unlike other P2P platforms, RateSetter does not allow you to see who you are lending to and does not split your loan across multiple borrowers. Instead; it operates a provision fund which is intended to cover any borrower default. Up to date statistics are provided on the current interest and capital coverage ratios (Statistics). At the time of writing, the interest coverage ratio is 116% (lower than the target range of 125% to 150%).
As with any investment that offers returns in excess of bank savings accounts, there are additional risks attached which you must be aware of before making an investment decision.
The key difference is that whilst RateSetter is authorised by the FCA, this authorised status does not mean that money is protected. The FSCS protection scheme which applies to banks does not apply to P2P platforms and capital should therefore be considered at risk.
What would happen if RateSetter went into administration?
RateSetter notes that should it cease trading, it has a fully funded run-off plan which would be activated and administered by a third party. Contracts between investors and borrowers would remain binding and the provision fund would continue to operate.
In reality, I think that it is highly likely it would not be as orderly as RateSetter suggests. You should be aware that should the RateSetter business go into administration, it is unlikely that funds would be readily accessible to withdraw prior to the end of the underlying loan terms.
How and when can I exit my investment?
Provided there is sufficient demand from other investors, it is quick and easy to sell your RateSetter investment. I initially invested £1,500, but later withdrew £500 as wanted to redistribute funds to other P2P platforms. I submitted the request on 4 March 2019, and the funds were in my account and available for withdrawal one day later (5 March 2019).
How can I pay money in?
The RateSetter platform accepts payments via debit card or bank transfer. Neither methods have a fee imposed.
Do RateSetter offer an IFISA?
Yes, RateSetter offer an IFISA. Cashback of £50 is currently available if you open an ISA and hold funds of £500 for more than a year. Increased cashback of £150 is available when you open an account and invest £10,000 or more for a year.
What cashback does RateSetter offer its new investors for standard accounts?
RateSetter is currently offering:
- £100 if you invest £1,000 (10.0%)
Whilst you should never invest solely on the basis of cashback offered; using such offers can potentially boost your first year returns and it is my personal preference to take advantage of these offers when available.
I personally invested £1,500 via the RateSetter platform on 20 January 2019. The official terms state that cashback will be paid 30 days after the one year anniversary of your investment. I would therefore expect to receive my £100 cashback on 20 February 2020.