The RateSetter platform launched in 2010 and offers investors the ability to lend funds in the form of personal, business and property loans. The platform has a provision fund designed to cover any unexpected interest and capital losses. A large proportion of the portfolio currently relates to personal loans (73% based on 1 Jan 2019 data).
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RateSetter - Personal, business and property loans.
Cashback: £100 (10.0%)
Minimum investment: £1,000
- Time in business
- Hands off investing
Summary of key features
|Estimated annual returns||3.0% to 4.0% (same underlying product, target rate depends on whether you want fee-free withdrawal)|
|Loan security||Majority of loans are unsecured consumer loans. Business loans are subject to director guarantees whilst property loans are asset-backed.|
|Innovative Finance ISA||✓|
|Cashback offer||£100 when you invest £1,000 (10.0%)|
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?
Previously, RateSetter used to enable investors to select the interest rate they were willing to lend at (hence the name, RateSetter). However, the business model has now simplified, and you simply have the option to choose between the Access (3.0% target rate), Plus (3.5% target rate) or Max (4.0% target rate) accounts.
Each of these accounts invests in the same underlying loans. The sole difference is the level of withdrawal fees. Funds invested into the ‘Access’ product will be subject to zero withdrawal fees, whilst Plus and Max are subject to 30 days and 90 days interest charges, respectively.
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 the following cashback:
- £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.