Peer to peer lending– an alternative way to boost your savings

Filled your ISA? Disillusioned with low savings rates? Could peer-to-peer lending be an option for you?

But how exactly does peer-to-peer lending work, and what are the risks involved? Here we explain all you need to know to make the most of your money.

Product information supplied has been provided by each individual brand not moneysupermarket.com

Peer-to-peer savings accounts - Short term easy access to your money - Ordered by expected AER after fees and bad debt

    • Provider/Product name Monthly Access

      RateSetter

      Monthly Access

    • Expected AER after fees and bad debt 2.40% variable
    • More details

      You lend to… Real people (RateSetter has checked they're creditworthy)
      When do I earn interest? Only once money is lent, though if you select 'market offered rate' this is usually quick
      Can I withdraw money before term ends? Yes - but you'll be subject to pay SellOut fees
      Provision fund? Yes, £6.7 million as of of August 2014
      How much can I save? From £10 to £1 million
      Founded in 2010

    • Go to site

    Largest Provision Fund

    To date, no investor has lost their money due to a borrower defaulting

    Great for
    Short term access to your money
    Simple P2P lending. RateSetter match your funds for you - just how a bank operates
    No lender fee applies
    But be aware that
    30 days' notice is required before your funds can be released
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

Peer-to-peer savings accounts - Short Term 6 Months To 3 Years - Ordered by term

    • Provider/Product name Short Term (6 months to 3 years)

      Funding Circle

      Short Term (6 months to 3 years)

    • Expected AER after fees and bad debt 6.10% variable
    • More details

      You lend to… All types of businesses including limited companies, sole traders and partnerships in the UK (Funding Circle grades their credit rating A+ to C-)
      When do I earn interest? Once your money is lent out you receive repayments every month (interest and principal)
      Can I withdraw money before term ends? Yes, you can sell some or all of your loan parts to other investors, for a 0.25% charge on each loan part
      Provision fund? No but lenders have a full view of the businesses they are lending to at a rate that suits their risk appetite
      How much can I save? From £20, with no maximum
      Founded in 2010

    • Go to site

    Business Funding Scheme

    Support British economy by lending alongside the UK Government, 30,000 people and other investors

    Great for
    You can pre-select each and every individual business you would like to invest in
    If you would like more of a hassle-free solution, you can pre-select your preferred profile and let the Autobid invest for you
    But be aware that
    1% annual servicing fee applies on the money you have lent
    There is no provision fund within the Funding Circle platform and is operated similar to an investment - the lower the risk band, the higher AER rates apply - but remember these are the riskier business
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 6 Month Term

      Wellesley & Co

      6 Month Term

    • Expected AER after fees and bad debt 3.02%
    • More details

      You lend to… Property developers. All lending is secured against property
      When do I earn interest? Unusually, before money is even lent
      Can I withdraw money before term ends? Yes. There is no fee however the interest rate will be re-aligned to fairly reflect how long you lent your funds for. This is available subject to liquidity
      Provision fund? Yes, £300k as of June 2014
      How much can I save? From £10, with no maximum
      Founded in 2012 (platform launched in January 2014)

    • Go to site

    Exclusive

    Lend over £5,000 and receive £100 cashback, lend over £2,500 and receive £50 Cashback!

    Great for
    No lender fee applies
    Start earning interest before your money is successfully matched
    But be aware that
    Early withdrawal is not guaranteed - ensure you can fix your savings for the specified term. If you think you'll need access, look for a shorter term or even monthly access products
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 12 Month Term

      Wellesley & Co

      12 Month Term

    • Expected AER after fees and bad debt 4.00%
    • More details

      You lend to… Property developers. All lending is secured against property
      When do I earn interest? Unusually, before money is even lent
      Can I withdraw money before term ends? Yes. There is no fee, however the interest rate will be re-aligned to fairly reflect how long you lent your funds for. This is available subject to liquidity
      Provision fund? Yes, £300k as of June 2014
      How much can I save? From £10, with no maximum
      Founded in 2012 (platform launched in January 2014)

    • Go to site

    Exclusive

    Lend over £5,000 and receive £100 cashback, lend over £2,500 and receive £50 cashback!

    Great for
    No lender fee applies
    Start earning interest before your money is successfully matched
    But be aware that
    Early withdrawal is not guaranteed - ensure you can fix your savings for the specified term. If you think you'll need access, look for a shorter term or even monthly access products
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 12 Months Term

      Lending Works

      12 Months Term

    • Expected AER after fees and bad debt 3.10% AER
    • More details

      You lend to… Real people (Lending Works has checked they're creditworthy)
      When do I earn interest? Only once money is lent. On average this takes 7 days
      Can I withdraw money before term ends? Yes, for a 0.6% (min £20) fee and there needs to be a new lender willing to take your loans before you can access your money
      Provision fund? Yes and on top of that Lending Works is unique as it has insurance against borrower default
      How much can I save? From £10, no maximum
      Founded in 2012 (platform launched 2014)

    • Go to site

    Lending Works Shield

    Threefold protection which includes the Lending Works Shield. The Shield has insurance against borrower defaults, cybercrime and fraud. No other peer-to-peer lender offers this.

    Great for
    Easily re-invest your earnings through the online Auto Lend tool
    Get instant access to your money using the Quick Withdraw tool
    No lender fees apply
    But be aware that
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 1 Year Bond

      RateSetter

      1 Year Bond

    • Expected AER after fees and bad debt 3.50% fixed
    • More details

      You lend to… real people (Ratesetter has checked they're creditworthy)
      When do I earn interest? Only once money is lent, though if you select 'market offered rate' this is usually quick
      Can I withdraw money before term ends? Yes - but you'll be subject to pay SellOut fees
      Provision fund? Yes, £6.7 million as of of August 2014
      How much can I save? From £10 to £1m
      Founded in 2010

    • Go to site

    Largest Provision Fund

    To date, no investor has lost their money due to a borrower defaulting

    Great for
    Short term access to your money
    Simple P2P lending. RateSetter match your funds for you - just how a bank operates
    No lender fee applies
    But be aware that
    30 days' notice is required before your funds can be released
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 18 Month Term

      Wellesley & Co

      18 Month Term

    • Expected AER after fees and bad debt 4.60%
    • More details

      You lend to… Property developers. All lending is secured against property
      When do I earn interest? Unusually, before money is even lent
      Can I withdraw money before term ends? Yes. There is no fee however the interest rate will be re-aligned to fairly reflect how long you lent your funds for. This is available subject to liquidity
      Provision fund? Yes, £300k as of June 2014
      How much can I save? From £10, with no maximum
      Founded in 2012 (platform launched in January 2014)

    • Go to site

    Exclusive

    Lend over £5,000 and receive £100 cashback, lend over £2,500 and receive £50 Cashback!

    Great for
    No lender fee applies
    Start earning interest before your money is successfully matched
    But be aware that
    Early withdrawal is not guaranteed - ensure you can fix your savings for the specified term. If you think you'll need access, look for a shorter term or even monthly access products
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 3 Year Term

      Wellesley & Co

      3 Year Term

    • Expected AER after fees and bad debt 4.86%
    • More details

      You lend to… Property developers. All lending is secured against property
      When do I earn interest? Unusually, before money is even lent
      Can I withdraw money before term ends? Yes. There is no fee however the interest rate will be re-aligned to fairly reflect how long you lent your funds for. This is available subject to liquidity
      Provision fund? Yes, £300k as of June 2014
      How much can I save? From £10, with no maximum
      Founded in 2012 (platform launched in January 2014)

    • Go to site

    Exclusive

    Lend over £5,000 and receive £100 cashback, lend over £2,500 and receive £50 Cashback!

    Great for
    No lender fee applies
    Start earning interest before your money is successfully matched
    But be aware that
    Early withdrawal is not guaranteed - ensure you can fix your savings for the specified term. If you think you'll need access, look for a shorter term or even monthly access products
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 3 Year Income

      RateSetter

      3 Year Income

    • Expected AER after fees and bad debt 4.70% fixed
    • More details

      You lend to… Real people (RateSetter has checked they're creditworthy)
      When do I earn interest? Only once money is lent, though if you select 'market offered rate' this is usually quick
      Can I withdraw money before term ends? Yes - but you'll be subject to pay SellOut fees
      Provision fund? Yes, £6.7 million as of of August 2014
      How much can I save? From £10 to £1 million
      Founded in 2010

    • Go to site

    Largest Provision Fund

    To date, no investor has lost their money due to a borrower defaulting

    Great for
    Short term access to your money
    Simple P2P lending. RateSetter match your funds for you - just how a bank operates
    No lender fee applies
    But be aware that
    30 days' notice is required before your funds can be released
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 3 Year Term

      Lending Works

      3 Year Term

    • Expected AER after fees and bad debt 4.30% AER
    • More details

      You lend to… Real people (Lending Works has checked they're creditworthy)
      When do I earn interest? Only once money is lent. On average this takes 7 days
      Can I withdraw money before term ends? Yes, for a 0.6% (min £20) fee and there needs to be a new lender willing to take your loans before you can access your money
      Provision fund? Yes and on top of that Lending Works is unique as it has insurance against borrower default
      How much can I save? From £10, no maximum
      Founded in 2012 (platform launched 2014)

    • Go to site

    Lending Works Shield

    Threefold protection which includes the Lending Works Shield. The Shield has insurance against borrower defaults, cybercrime and fraud. No other peer-to-peer lender offers this.

    Great for
    Easily re-invest your earnings through the online Auto Lend tool
    Get instant access to your money using the Quick Withdraw tool
    No lender fees apply
    But be aware that
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 3 Years

      Zopa

      3 Years

    • Expected AER after fees and bad debt 4.00% Rate Promise
    • More details

      You lend to… Real people, including sole traders (Zopa grades their credit rating A* to C)
      When do I earn interest? Only once money is lent to a borrower
      Can I withdraw money before term ends? Yes - but a 1% fee applies
      Provision fund? Yes referred to as the Safeguard fund, £3.7 million as of May 2014
      How much can I save? From £10, with no maximum
      Founded in 2005 - it's the oldest P2P platform

    • Go to site

    Great for
    For emergency access, you can use Zopa's Rapid Return tool - a 1% fee applies to use this service
    But be aware that
    You must be 20 years or older to lend your money with Zopa
    Your savings are not protected by the FSCS

Peer-to-peer savings accounts - Long Term 4 Years And Over - Ordered by term

    • Provider/Product name Long Term (3 years to 5 years)

      Funding Circle

      Long Term (3 years to 5 years)

    • Expected AER after fees and bad debt 6.10% variable
    • More details

      You lend to… All types of businesses including limited companies, sole traders and partnerships in the UK (Funding Circle grades their credit rating A+ to C-)
      When do I earn interest? Once your money is lent out you receive repayments every month (interest and principal)
      Can I withdraw money before term ends? Yes, you can sell some or all of your loan parts to other investors, for a 0.25% charge on each loan part
      Provision fund? No but lenders have a full view of the businesses they are lending to at a rate that suits their risk appetite
      How much can I save? From £20, with no maximum
      Founded in 2010

    • Go to site

    Business Funding Scheme

    Support British economy by lending alongside the UK Government, 30,000 people and other investors

    Great for
    You can pre-select each and every individual business you would like to invest in
    If you would like more of a hassle-free solution, you can pre-select your preferred profile and let the Autobid invest for you
    But be aware that
    1% annual servicing fee applies on the money you have lent
    There is no provision fund within the Funding Circle platform and is operated similar to an investment - the lower the risk band, the higher AER rates apply - but remember these are the riskier business
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 5 Year Income

      RateSetter

      5 Year Income

    • Expected AER after fees and bad debt 6.00% fixed
    • More details

      You lend to… Real people (RateSetter has checked they're creditworthy)
      When do I earn interest? Only once money is lent, though if you select 'market offered rate' this is usually quick
      Can I withdraw money before term ends? Yes - but you'll be subject to pay SellOut fees
      Provision fund? Yes, £6.7 million as of of August 2014
      How much can I save? From £10 to £1 million
      Founded in 2010

    • Go to site

    Largest Provision Fund

    To date, no investor has lost their money due to a borrower defaulting

    Great for
    Short term access to your money
    Simple P2P lending. RateSetter match your funds for you - just how a bank operates
    No lender fee applies
    But be aware that
    30 days' notice is required before your funds can be released
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages.  Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 5 Year Term

      Wellesley & Co

      5 Year Term

    • Expected AER after fees and bad debt 6.00%
    • More details

      You lend to… Property developers. All lending is secured against property
      When do I earn interest? Unusually, before money is even lent
      Can I withdraw money before term ends? Yes. There is no fee however the interest rate will be re-aligned to fairly reflect how long you lent your funds for. This is available subject to liquidity
      Provision fund? Yes, £300k as of June 2014
      How much can I save? From £10, with no maximum
      Founded in 2012 (platform launched in January 2014)

    • Go to site

    Exclusive

    Lend over £5,000 and receive £100 cashback, lend over £2,500 and receive £50 Cashback!

    Great for
    No lender fee applies
    Start earning interest before your money is successfully matched
    But be aware that
    Early withdrawal is not guaranteed - ensure you can fix your savings for the specified term. If you think you'll need access, look for a shorter term or even monthly access products
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 5 Year Term

      Lending Works

      5 Year Term

    • Expected AER after fees and bad debt 5.70% AER
    • More details

      You lend to… Real people (Lending Works has checked they're creditworthy)
      When do I earn interest? Only once money is lent. On average this takes 7 days
      Can I withdraw money before term ends? Yes, for a 0.6% (min £20) fee and there needs to be a new lender willing to take your loans before you can access your money
      Provision fund? Yes and on top of that Lending Works is unique as it has insurance against borrower default
      How much can I save? From £10, no maximum
      Founded in 2012 (platform launched 2014)

    • Go to site

    Lending Works Shield

    Threefold protection which includes the Lending Works Shield. The Shield has insurance against borrower defaults, cybercrime and fraud. No other peer-to-peer lender offers this.

    Great for
    Easily re-invest your earnings through the online Auto Lend tool
    Get instant access to your money using the Quick Withdraw tool
    No lender fees apply
    But be aware that
    Your savings are not protected by the FSCS

    Peer-to-peer lending can offer potentially attractive returns. There is a risk you may lose some or all of your initial investment as it is not protected by the Financial Services Compensation Scheme, although many lenders do offer their own compensation packages. Please first read our peer-to-peer guide below to see if this product is right for you.

    • Provider/Product name 5 Years

      Zopa

      5 Years

    • Expected AER after fees and bad debt 5.20% Rate Promise
    • More details

      You lend to… Real people, including sole traders (Zopa grades their credit rating A* to C)
      When do I earn interest? Only once money is lent to a borrower
      Can I withdraw money before term ends? Yes - but a 1% fee applies
      Provision fund? Yes referred to as the Safeguard fund, £3.7 million as of May 2014
      How much can I save? From £10, with no maximum
      Founded in 2005 - it's the oldest P2P platform

    • Go to site

    Great for
    For emergency access, you can use Zopa's Rapid Return tool - a 1% fee applies to use this service
    But be aware that
    You must be 20 years or older to lend your money with Zopa
    Your savings are not protected by the FSCS

What is peer-to-peer lending?

Important information about peer-to-peer lending

Investing your savings in a peer to peer lending scheme can potentially be a good way to get better returns than more conventional forms of saving. However, it should only be considered as part of a balanced investment portfolio and is not for everyone. Peer to peer savings are not regulated by the Financial Conduct Authority and your capital will not be protected by The Financial Services Compensation Scheme should things go wrong. It’s important you understand both the advantages and disadvantages before making a decision on whether to invest, please read this guide to help you make a more informed decision.

As the name suggests, peer-to-peer lending involves people using their savings to lend to other individuals, therefore cutting out the need for banks to be involved. The aim is that those who are willing to lend could get higher returns on their savings than they would if they put their money in a conventional savings account, and in turn the individuals they are lending to could get lower cost loans than they would if they borrowed through a bank.

Some peer-to-peer sites lend to small businesses too, which for many has proved invaluable in light of current tight bank lending restrictions.

As a lender, you can choose your rate of return based on the length of time you want to invest your money for and the level of risk you’re prepared to take. For example, if you only want to lend to those with the best credit scores you will earn less than if you are prepared to lend to a higher risk group.

There are charges and fees although these are usually already factored in to the rate you see advertised – this is worth checking though.

Anyone aged 18 or above who is a UK resident, has a UK current account and is not lending in the course of a business can usually become a peer to peer lender.

You don’t need to lend large sums to invest either, most peer-to-peer investments start from as little as £10 or £20.

What are the advantages of using peer-to-peer lending?

In today’s low interest rate environment, peer-to-peer saving is proving increasingly popular, as it offers one of the few ways for savers to potentially generate returns that could beat inflation. Returns can be considerably higher than those offered on most savings accounts, and are fixed for the period of the loan, which can usually be over either three or five years. In order to minimise the risks any money you lend can usually be split over multiple credit-checked borrowers in small chunks. Therefore if one person fails to keep up with their repayments, it doesn’t mean you would lose all your money.

Some peer-to-peer lending companies run their own schemes that guarantee to return every penny to investors through a Provision Fund which borrowers contribute to by way of a credit rate fee charged at between 0.5% and 3% of the loan.

For additional protection, most peer-to-peer schemes hold Consumer Credit Licences from the Office of Fair Trading and use the same processes and fraud prevention systems as banks, but always ask what protection is in place before becoming a lender.

What are the dis-advantages of peer to peer lending?

Saving with peer to peer lending should only be considered as part of a balanced investment portfolio.

Peer to peer saving is not regulated by The Financial Conduct Authority and your money will not be covered by the Financial Services Compensation Scheme as with most standard investment schemes if the lending company goes bust.

Investing your savings within a peer to peer lending scheme is not for everyone. Interest rates vary significantly with higher returns gained through lending to higher risk borrowers. This in turn raises the risk that you may not get some or all of your money back.

If you need to withdraw your funds early, some schemes will charge a fee for doing this and some schemes don’t allow withdrawal of your capital early at all. It is sometimes possible to sell the loan on in order to get your money out early, but there is usually a fee for doing this and could take time, meaning you can’t access your cash in the interim.

If the person you have lent the money to within the scheme defaults on their loan repayments, there is a risk you could lose all or some of your money. Also, if the borrower chooses to repay their loan early, which many people do, it will have a knock on effect on your rate of return.

Compare options for investing in peer-to-peer lending

The number of peer-to-peer lending schemes available has increased dramatically in recent years, so comparing them and finding the right one to suit your needs isn’t always easy. However, you can use MoneySupermarket.com to compare peer to peer investment options without having to trawl around all the different sites yourself.

 

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