dali
Posts: 10
Likes: 1
|
Post by dali on Mar 22, 2016 9:44:19 GMT
I have been an investor with Ratesetter for some time but this is my first post on this forum, although I follow it avidly and have gathered much useful information from the very knowledgeable regular contributors!
Until very recently, I have split my (very substantial) holding between the 5 year and monthly markets in the ratio of about 4:1, using the monthly market for occasional withdrawals (mainly to pay for holidays!). This seemed the obvious thing to do, especially now the withdrawal fee has been abolished for the monthly market. However, after reading the discussion on another thread concerning withdrawal fees, I made some 'trial' withdrawals from the 5 year market and discovered that the withdrawal fees were all 0.25% of the sums I would be likely to need over the next year or so. This means that it would be more profitable to move my entire monthly market to the 5 year market, thus gaining an extra 3% or so on that money; the extra interest would far exceed the small withdrawal fees I would incur from withdrawals from the 5 year market, and the money becomes available just as quickly.
Can anyone see any defects in my reasoning, or any other problems with this strategy?
|
|
locutus
Member of DD Central
Posts: 1,059
Likes: 1,622
|
Post by locutus on Mar 22, 2016 9:50:22 GMT
Do NOT do this. The fees you have calculated will change depending on how long you have been invested, the rates available on the market (both at the time of your original loan and redemption) and some black magic which no one seems to be able to explain. Have a read here for more info: p2pindependentforum.com/thread/3518/sell-outIn summary, selling out of the 5 year market can get expensive.
|
|
locutus
Member of DD Central
Posts: 1,059
Likes: 1,622
|
Post by locutus on Mar 22, 2016 9:53:38 GMT
Have you considered SS or MT? The rates are much better and liquidity is measured in hours and days. You could blend your RS investment with some 12% investments on SS or MT to achieve your desired goal.
|
|
|
Post by Butch Cassidy on Mar 22, 2016 9:56:59 GMT
I don't invest with RS but surely following your logic you would be better moving the monthly money to MT, SS, FC, AC where rates of 12%+ are available, which appear to be double that on the 5 year market, & access is also pretty immediate? Even assuming an average default rate, which can be bettered with a small amount of DD, returns would be way ahead of anything RS offers. I struggle to see the logic of RS based solely on the rates on offer.
EDIT: Cross posted with locutus
|
|
dali
Posts: 10
Likes: 1
|
Post by dali on Mar 22, 2016 9:59:22 GMT
Thanks for your prompt reply!
Just to put some figures on it, if I were to carry out my plan, I would gain about £400 a year in extra interest. The withdrawal fees for the sums I would need, about two or three times a year, would be (according to my 'trial' withdrawals) about £10-20 per withdrawal. Surely the fees would never be so large as to exceed the extra interest?
|
|
locutus
Member of DD Central
Posts: 1,059
Likes: 1,622
|
Post by locutus on Mar 22, 2016 10:09:29 GMT
Thanks for your prompt reply! Just to put some figures on it, if I were to carry out my plan, I would gain about £400 a year in extra interest. The withdrawal fees for the sums I would need, about two or three times a year, would be (according to my 'trial' withdrawals) about £10-20 per withdrawal. Surely the fees would never be so large as to exceed the extra interest? Did you read the thread I linked? The Sell Out process is opaque despite assurances from RS. There are worked and real world examples that show just how expensive it can be. If you invest in the 5 year market, expect to keep your money invested for 5 years or pay an expensive penalty for withdrawal. Alternatively, use a combination of SS/MT and RS to achieve what you want to do.
|
|
dali
Posts: 10
Likes: 1
|
Post by dali on Mar 22, 2016 10:19:12 GMT
I did read your reply, rather crossly worded, I thought! I recently 'sold out' £4000 on the 5 year market. The sell-out fee was £10, less than the extra interest I earned in one month by having that money in the 5-year rather than the monthly market.
I take the point that I might do better by splitting my holding between several platforms, but for the sums involved, I want to keep my financial affairs as simple as possible, as I have other, more interesting things to do with my time!
|
|
locutus
Member of DD Central
Posts: 1,059
Likes: 1,622
|
Post by locutus on Mar 22, 2016 10:24:27 GMT
My reply was not intended to be cross. In fact, rereading it, I can't see why you would think that. Regardless, have more of a read around the forum as there are a lot of great contributors and you are unlikely to be the first person to have raised a query about something. Oh and welcome to the forums.
|
|
|
Post by davee39 on Mar 22, 2016 10:39:10 GMT
I have always been aware of the risks of P2P, even with substantial platforms like RS. My instant access money earns 1% in a Building Society. It is not a rate I like but at least it is covered by FSCS. RS 5 yr is not intended for instant access and the fees are designed to discourage such use. The option to access money early should be seen as an emergency feature rather than a financial plan, fees could be significantly higher as the loan matures and has made repayments.
|
|
ben
Posts: 2,020
Likes: 589
|
Post by ben on Mar 22, 2016 10:48:36 GMT
You might be lucky and not get hit by high fees or you might be unlucky and get hit by fees, it all depends on the day, current rate offered, who wants to invest etc and has been put before some random other factors, basically RS do not want you and they have set it up so that people would not, after all if it was that easy we all would do it and nobody would use the monthly market
|
|
alender
Member of DD Central
Posts: 957
Likes: 647
|
Post by alender on Mar 22, 2016 10:49:34 GMT
I want to keep my financial affairs as simple as possible, as I have other, more interesting things to do with my time! I started using RS because I thought it was simple and want to spend more of my time on my equity investments. However on the surface it may look simple but my experience it is that is far from simple. Two good examples are trying to find the way the way rates are set and the sell out fees, both have no clear answers. Rates are set by RS based on loans, funds available and some other factors that are not known, rates are volatile and it takes some effort to get achieve a decent rate. The rules for sell out fees for all markets is not fully known see p2pindependentforum.com/thread/4452/ratesetter-removes-sell-monthly-market for issues in the monthly market. The best source information I have found is this site but it does mean I have to spend a fair amount of time on research. If you do not you will lose money, e.g. taking lower rates (can be a couple of % or more) or being charged high fees if you sell out of a loan at the wrong time.
|
|
dali
Posts: 10
Likes: 1
|
Post by dali on Mar 22, 2016 10:50:37 GMT
Thanks for your reply, Davee39. Based on my figures, the 5-year market seems ideal for smallish withdrawals, compared to the monthly market. I should say that I have some money in a current account, earning 3% interest, so am not entirely dependent on RS for ready cash!
|
|
registerme
Member of DD Central
Posts: 6,213
Likes: 6,021
|
Post by registerme on Mar 22, 2016 10:58:45 GMT
Something else that can be inferred (correctly?) from your OP is that you only use RS. If that's the case (and no offence to RS intended), then there are many good reasons, beyond return and access, to diversify across additional platforms. Some though will require some investment of time on your part, which is a consideration. RM PS. Always been a big fan of your work .
|
|
alender
Member of DD Central
Posts: 957
Likes: 647
|
Post by alender on Mar 22, 2016 11:00:22 GMT
My instant access money earns 1% in a Building Society. It is not a rate I like but at least it is covered by FSCS. If you spend the time setting up the accounts you can get 3%+ instant access all protected by the FSCS (and I mean instant access not the 1 day + that it takes to get money out of RS). I have managed to get over £40,000 invested. Once set up there is no work to do, you must move money around once a month which I do automatically by standing orders. This can be tripled for two people using joint accounts. You can increase this amount with accounts with teaser rates, ones that insist on a number direct debits and monthly saving.
|
|
am
Posts: 1,495
Likes: 601
|
Post by am on Mar 22, 2016 11:38:22 GMT
RateSetter's sellout feature sells out the most recent contracts (with the least reclaimable interest) first. The effect of this is that you can be misled into thinking that selling out is relatively cheap. When you dig into older money it gets more expensive.
The basic rule for sellout is that you pay back the excess interest and RS's fee. So if no money stays in for more than one year you get less on the Five Year Market (mistreated as instant access) than on the Monthly Market.
There is some scope for gaming the system. Older money eventually ends up being entitled to at least the 1 year or the 3 year rate. So if you expect your holdings to have positive trend, you could model cash flows, and see whether the eventual locked in entitlement to higher rates outweighs paying RS's fees. (If you put money in and out several times per year the fees add up - in the extreme case of putting money into the 5 year market at the start of the month, and taking it out during the same month, i.e. treating it like a bank account, you'd end up paying RS money.)
Edit: It's not quite as bad as I thought - the Admin Fee is only charged if the Return Fee (reclaimed interest) is less than 0.25%, and is reduced by the value of the Return Fee. (If I recall correctly this changed a while back from the Admin Fee always being charged, and I had forgotten that it had changed. This means you probably do stay in the black.)
But there are two additional uncertainties. Firstly if interest rates move against you, you can be hit for assignment fees. These could be substantial (in excess of 10%, perhaps well in excess of 10%) Secondly, it is unclear exactly what interest rates RS uses for their calculations, so you can't produce a reliable model to assess costs.
|
|