RateSetter is one of the ‘Big 3’ UK platforms, alongside Zopa and Funding Circle. This means that it has major backing behind it, a well functioning website, and good liquidity. It is designed for investors who want to earn more than a term deposit, but don’t want to devote too much time or effort to their investments. Investors in RateSetter have their money invested across a large number of loans, providing good diversification. Investors can choose from the ‘rolling’ monthly market or 1 and 5 year markets. The 1 and 5 year markets offer slightly higher returns, but investors have to pay fees if they want to sell their investments early. Investors need to set ‘bid’ levels for the return they want in each market. To maximise returns, some investors log in regularly to take advantage of fluctuations / spikes in rates. RateSetter is most suitable for investors who prefer simple products they can ‘set and forget’, with a stable return profile.
We do have some concerns about Ratesetter though. The provision fund is currently only funded at 116% of expected losses – if there is an economic downturn we have doubts that the provision fund will be sufficient in size. Ratesetter is also one of the most aggressive lenders currently in the personal loans market. It is true that they focus on lending to borrowers with lower risk profiles. However the very low rates they are charging means that there is a risk that the portfolio will perform poorly during the next economic downturn, as there will be relatively little interest income available to offset any future defaults. Defaults have been increasing, and were above expectations for loans made in 2014, 2015 and 2016. We would expect many investors to quickly seek an exit if there is an indication that defaults are increasing. Since July 2017 the interest rates paid to investors have been steadily increasing on all their products. While this seems good news for investors, as they are earning 2-3% pa extra, it may also indicate that some investors are becoming wary.
RateSetter is offering new investors a £100 bonus. To qualify, visit Ratesetter and open an account using this link.
Investors will receive their £100 bonus automatically into their account. It will be paid once investors have invested a minimum of £5,000 for 12 months. Full details are provided on the Ratesetter site.