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Peer-to-peer lending returns vs other investments


Since the result of the Brexit referendum was announced, there have been conflicting reports on the current and future health of Britain’s economy. While the experts debate on whether or not Britain faces a recession, one outcome cannot be ignored: on 4th August, the Bank of England cut interest rates from 0.5% to 0.25%*, and there are rumours they may fall again this year. Returns for savers were already poor, but this latest cut has reduced the incentive to save and made it even more difficult to earn a good rate of return from savings.

Some banks have already lowered their rates or have indicated they are considering it. Savers are caught between accepting these lowered rates or investing in asset classes that give higher returns but potentially carry more risk than they would usually be willing to take. There are a number of alternatives to savings accounts, each with different risk and returns. You may consider putting your money in shares, bonds, property, or luxury goods – or diversify with two or more of these choices. LendingCrowd offers another option: peer-to-peer (P2P) lending.

It is important to remember that all investments carry risk.

 

Where can I get better returns?

Returns vary depending on the nature of your investment. Savings account returns are notoriously low, with returns starting from 1.1% (alternate: starting from 0.34%). With returns this lacklustre, savers willing to take on more risk can profit elsewhere.

The stock market can give better returns, possibly up to 5%. Stocks and bonds can be volatile and there is a risk of companies going bust, but you can also earn returns in excess of the ones listed here.

Investing in property has historically been a sound investment choice, however the market is fluctuating due to economic uncertainty. Some experts expect commercial real estate values to fall and the number of buy-to-let mortgages fell to an 18-month low in July, meaning house prices could fall this year and into the next. While buying a bargain property with the intention to develop it may seem appealing, it is important to consider whether the material and labour costs of renovating, especially during a downturn in the market, are worth it.

Another alternative is investing in luxury goods, which is also known as real asset investment because you are placing your money in a tangible asset. Savers who would typically turn to bonds might turn to gold, for example, due to the low interest rates of bonds on offer and their relatively safe investment status. Recent economic uncertainty has led more investors to purchase gold, and prices have been rising since early 2016.

P2P lending is a relatively new way for investors to earn returns. In exchange for investing in a business loan, investors receive monthly repayments and interest. The amount of interest you might earn depends on the platform you use and the risk assigned to the business, but at LendingCrowd, you can earn returns from 7.2% (after bad debt and fees). While there is a risk of businesses defaulting, the higher peer-to-peer lending returns can pay off if you diversify your investments wisely.

 

Which is right for you?

Your level of return may be impacted by your risk appetite. If you prefer lower risk and lower returns, you might choose to keep your money in your savings account or invest in bonds. If you are comfortable with more risk, property and peer-to-peer lending returns can be higher. No matter which investment option you choose, it’s important to remember that your capital is at risk and that diversifying your investments can help mitigate your risk.

If you’re tired of poor returns and want to invest in businesses across the UK, give us a call at 0131 564 1600 or email us on contactus@lendingcrowd.com. We’re here to help and are happy to answer any investing questions you might have!

 

*All figures in this blog are current as of the publication date and may change over time.

 

Peer-to-peer lending returns vs other investments

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Erika Borys

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If you invest through LendingCrowd you should understand that your capital is at risk.

LendingCrowd is the trading name of Edinburgh Alternative Finance Limited, Company Number SC468392, authorised and regulated by the Financial Conduct Authority (Firm reference number 670991). LendingCrowd and its products are not covered by the Financial Services Compensation Scheme.

Read more about the risk involved when investing and borrowing.

The company's registered office is 23 Manor Place, Edinburgh, EH3 7DX.

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