Peer-to-peer returns put Nisas to shame


Many people will have put their savings in new cash-based Nisas in the past few months to save paying tax on their interest, but despite this benefit, they will be dismayed with the level of returns currently on offer.

Unfortunately for savers the Isa market mirrors the depressing outlook for the savings market as a whole.

With rates at rock bottom and further cuts taking place every week, maybe now's the time to look at an alternative and more lucrative home for your savings – such as peer-to-peer lending.

The returns from peer-to -peer providers look more appealing than ever, with RateSetter, for example, offering 3.5 per cent for a one-year bond as I write this. Even when you deduct 20 per cent tax, the net return is 2.8 per cent AER and is in a different league from the best one-year fixed-rate Isas, with Tesco Bank and Aldermore paying just 1.65 per cent.

In cold, hard cash terms, 1.65 per cent interest on the maximum cash Nisa allowance of £15,000 would give you a net annual return of £247.50 compared with a £420 net from the RateSetter one-year bond option.

Zopa remains the biggest player in the peer-to-peer marketplace and is equally competitive. It boasts more than 52,000 savings customers – not surprising when it pays a 5.2 per cent return over five years.

RateSetter is becoming one of the fastest growing P2P firms and saw an inflow of £25m in the last month alone.

It even offers a monthly access account paying 2.2 per cent – so if you're nervous, you can dip your toe in the water and try it out with a minimum deposit of just £10.

With an Isa, people will quite rightly point out that you can ring fence your savings from the taxman for this and future tax years something not currently available with a peer to peer provider, however if industry mumblings are to be believed this may well be something that changes in the not too distant future.

However if it's the level of net interest earned that's important to you then peer-to-peer wins hands down, plus you're not restricted to a maximum annual allowance as with a NISA so if you wanted to save £20,000 or even £50,000, that's an option.

One of the main concerns with people depositing their cash with peer-to-peer providers is that although the returns far outweigh those paid by the banks, they don't offer the cast-iron guarantee to savers that bank customers enjoy under the Financial Services Compensation Scheme.

As long as you fully appreciate and are comfortable with this, lower overheads of not having to run a nationwide network of branches, means you can obtain better returns on your cash.

Providers have their own methods in place to depositors. RateSetter for example maintains a "provision fund" with a balance of almost £7m built up from borrower fees. The fund is used to reimburse lenders in the case of late payment or default.

This safety net has ensured since it started almost four years ago, every penny of capital and interest has been returned to every single lender. Zopa also operates a similar model.

Peer-to-peer is here to stay and as long as providers keep rates competitive and bad debt levels under control, there's no doubt in my mind that it will become an even bigger thorn in the side of the banks. If you're fed up with miserly deals this year, maybe it's time to look elsewhere.

Andrew Hagger is an independent personal finance analyst from

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Life and Style
Steve Shaw shows Kate how to get wet behind the ears and how to align her neck
healthSteven Shaw - the 'Buddha of Breaststroke' - applies Alexander Technique to the watery sport
Arts and Entertainment
The sight of a bucking bronco in the shape of a pink penis was too much for Hollywood actor and gay rights supporter Martin Sheen, prompting him to boycott a scene in the TV series Grace and Frankie
footballShirt then goes on sale on Gumtree
Terry Sue-Patt as Benny in the BBC children’s soap ‘Grange Hill’
voicesGrace Dent on Grange Hill and Terry Sue-Patt
Arts and Entertainment
Performers drink tea at the Glastonbury festival in 2010
Arts and Entertainment
Twin Peaks stars Joan Chen, Michael Ontkean, Kyle Maclachlan and Piper Laurie
tvName confirmed for third series
Cameron Jerome
footballCanaries beat Boro to gain promotion to the Premier League
Arts and Entertainment
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    Abuse - and the hell that came afterwards

    Abuse - and the hell that follows

    James Rhodes on the extraordinary legal battle to publish his memoir
    Why we need a 'tranquility map' of England, according to campaigners

    It's oh so quiet!

    The case for a 'tranquility map' of England
    'Timeless fashion': It may be a paradox, but the industry loves it

    'Timeless fashion'

    It may be a paradox, but the industry loves it
    If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

    Could have done with Osama bin Laden staying alive?

    Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
    New exhibition celebrates the evolution of swimwear

    Evolution of swimwear

    From bathing dresses in the twenties to modern bikinis
    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine