British people turning away from dirty bankers?
It seems the British public have still not forgiven the banks for the financial crash, which many say caused the current economic crapness. Recent figures published by lend-to-save firm Zopa shows a massive 197% increase in business in the first quarter of this year, compared with the same period last year. It seems we’d rather cut out the middleman and bank with less bankerish people instead.
The increase year on year, means that through Zopa alone, 39,000 people are investing their money through peer-to-peer lending. Other lend-to-save firms are also reporting large increases in users. For savers, the choice seems simple- they can get a far better return than banks are offering- Zopa averages 5.1% after charges. Given most savings accounts don’t even match inflation - data from Moneyvista suggests that only 5 of the 2,291 savings accounts available on the market are in line with the (lower) CPI measure of inflation- this is a considerably better return.
However, what is more interesting is the amount of people borrowing from lenders like Zopa, Funding Circle or Ratesetter. The current lowest rate available on Zopa is 5.5%, but bank/building society loans can be obtained for around 5.1%. Zopa is very strict on its loan criteria so it is unlikely these people are using Zopa because they can’t get bank funding. They are choosing to borrow outside of banks.
While this is unlikely to worry the banks who make millions out of us every year, it does show an appetite for non-banked services, seemingly at odds with the Government's drive to get all benefits etc paid into bank accounts. There has also been a resurgence in local Credit Unions, which are based on the same premise as building societies used to be- a community of people saving and borrowing from each other.
However, before you rush and put all your cash into an alternative arrangement, remember that these schemes are not covered by the Financial Services Compensation Scheme, so handy in the times of Northern Rock, so you won’t get your £80,000 protection. That said, most of the bigger lend-to-save firms are part of the Peer-to-Peer finance association, where one criterion of membership is that investors are protected if the firm were to go bust. Lending is also split into micro-loans, normally around £10 per loanee, so even if one person defaults, your loss is minimised.
Also remember that this type of lending/saving is not for the very short-term. You will not get all your money back until the end of the loan term (normally three years plus). Zopa has introduced a quick buy-out scheme, where you can ‘sell’ your loan to another person, but you may not get all your capital back. If you think you might need it and you still don’t like banks, perhaps you should just keep it in your mattress instead…