Let’s compare Zopa with RateSetter in October 2015.
Having reviewed my investments with both RateSetter and Zopa, it is easy to see RateSetter coming out on top.
Zopa review October 2015
Zopa offers two options to lenders, 3 year or 5 year investments.
Zopa’s basic interest rate for 3 year loans remains at 3.8%. Of course, as with all peer to peer lenders, this rate assume you are reinvesting all of your returns, the compound interest eventually adding up to 3.8%.
5 year investments offer a better rate of 5.0% but this is a very long term investment option, given the time that will be needed to reinvest and ultimately gain the full 5.0%.
The speed of lending figures are interesting, and slightly concerning.
In the 3 year investment option, there is currently £1.5M queued to the lent and Zopa are lending out just over £300K per business day.
This is a bit of a worry. To achieve the target interest rates you must be reinvesting all of your income from existing loans, but at this rate of lending, it will take around 5 days for your recycled money to actually be lent out to a new borrower. In the meantime you are earning no interest.
The 5 years investment option looks a little healthier in terms of lending activity. With £1.3M queued to be lent, Zopa are matching loans to borrowers at a rate of nearly £1M per day. So you should only have to wait up to 2 days for your recycled money to be loaned out again.
RateSetter review October 2015
RateSetter offers four investment options to lenders, 1 month, 1 year, 3 year or 5 year investments. The 1 year investment pays out at the end of the year term, however the other options will generate a monthly income.
Those experienced with peer to peer lender RateSetter will know that interest rates offered vary over the course of 24 hours.
The rates are offered by lenders and if a borrow wants to accept them, a match is made.
Comparing RateSetter with Zopa based on one snapshot of rates at a certain time of day will only show the latest matched interest rates.
These rates will vary depending on how desperate lenders are to find a match or how desperate borrowers are to accept a higher rate.
A more useful guide looks at achievable interest rates on the different investment options.
For example, my 3 year portfolio in RateSetter has been able to easily find a matched rate of 5.7% in October within 24 hours.
This means I offered my 3 year loan at 5.7% and a borrower was matched to that offer the same day, allowing me to start earning interest straightaway.
This makes the 3.8% offered by Zopa for a 3 year investment, with a matching period of nearly a week, look like a very bad choice.
Similarly, my monthly loan portfolio in RateSetter has been able to match with borrowers in October on interest rates varying from 3.4% to 3.7%.
These matches took place within 24 hours of placing the lending offer.
I am a big fan of the RateSetter monthly lending option.
First off, you are able to achieve good interest rates with quick matches to borrowers.
Secondly, your money is only ever a maximum of one month away. This is a big plus.
Of course you can access your money quickly with both Zopa and RateSetter but there is always a cost involved if you sell out early. And this digs into your interest earnings.
But knowing that your money isn’t tied up for any more than a month, without incurring fees, and is earning very good interest seems like a win-win situation for lenders.
Summary – Zopa vs RateSetter October 2015
I have investments with both Zopa and RateSetter and I will continue to invest in both peer to peer lenders.
However, as far as range of products, best interest rates and ease of access to money (without fees) are concerned, I am seeing RateSetter as being the clear winner at the moment.
I feel that Zopa, whilst they have a great reputation, could offer a greater range of lending options. A 1 month or 1 year option would be good to see, however it would need to offer interest rates equivalent to their current 3 year option, and the rates for 3 year and 5 year investments should really be higher.
RateSetter have a great range of investments and the potential for very good interest rates.
And what’s more, RateSetter have applied gamification to the lending process, they have transformed investing into a game, one where you want to see if you can get a match for the best interest rate possible throughout the day and beat all those other lenders.