Peer to peer still not for everyone
As interest rates celebrate five years at their historic low, savers are commiserating five years of complete pants deposit rates. One way to combat microscopic returns could be to invest in peer to peer lending- an industry reporting massive growth in the last year. However, despite the better returns, and improved protection, new figures suggest over eight in ten (84%) consumers would not invest their money with a peer-to-peer lender.
Official figures show the UK's peer-to-peer lending sector increased by 121% during 2013, yet new figures from uSwitch.com show that only 2% of savers are currently using a peer-to-peer lending platform.
Mostly, consumers are put off by the lack of regulation and statutory protection- almost six in ten consumers (59%) are reluctant to use a peer-to-peer lender because the industry is not covered by the Financial Services Compensation Scheme, and four in ten (39%) say that it is because it is not regulated by the FCA. A further half (49%) are sceptical about using peer-to-peer lenders simply because they don’t know enough about them.
However, regulatory changes are coming to the peer to peer market in April, but this still won’t satisfy some customers. A quarter of those surveyed (25%) don’t want to lend money if they don’t know where it’s going, and one in ten (9%) don’t want to use an online platform.
Jafar Hassan, personal finance expert at uSwitch.com, said: “While the take up of peer-to-peer lending has been low so far, regulation should provide additional peace of mind. But to encourage more widespread adoption, peer-to-peer lenders need to convince consumers that their money is safe, and they can’t simply rely on regulation to do this.
It seems the risk/reward balance needs to tip more in order for more people to get on board with peer to peer. But given savings rates are so pitiful, what are people doing with their money? Some are investing in cash ISAs, although rates this year have so far proven lower than those available last year, and tax relief on nothing is not worth a fat lot. Interestingly, however, 43% of those surveyed are using current accounts to earn interest, such as the Santander 123 cashback account or the Nationwide 5% account. Ten per cent of people have given up on all kinds of formal banking and have stashed their cash in a piggy bank at home.
So what do you do with your spare cash?