Investboy
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Trying to recover from P2P revolution
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Post by Investboy on Mar 22, 2016 13:12:32 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! I'd attribute it to a) luck, b) current rates (your sellout rate was less or equal the current rate)
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am
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Post by am on Mar 22, 2016 13:32:13 GMT
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. The interest rate differential is around 3%. (I think it's less, but I don't have the same feel for the diurnal variation of the 5 year market, so I could be wrong.) Thus the additional annual interest is £120, and the extra interest earned in one month is £10, which coincidentally is the same as the sell out fee you were charged.
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Post by propman on Mar 22, 2016 14:14:32 GMT
I think I would sum up what has been said above that you are not necessarily comparing apples with other apples!
If you have no idea when you will need access to your funds or the amount of the withdrawals, then your assumption though risky may be valid. However, where you know what you need in advance (or at least part), you would be better off not lending it on the 5 year market.
In addition to the fee, you forfeit accrued interest on 5 year market (there seems some confusion whether this is the case on monthly market). Also the fee will be higher if any of the money invested was lent long enough ago to have had interest paid. So you will be no worse off not relending the amount required for the month before you need it. Also, remember you will pay tax on interest (unless within an IFISA), not sure withdrawal fees are deductible for tax. Your calculation is saying that interest on money you held "just in case" exceeded the losses on the amount required. Could you reduce the amount held accessible and only pay any fees if you have underestimated? Of course this assumes that you could get the money elsewhere if liquidity dried up or that it would not be too much of an issue if you changed your plans and so saved the money in these circumstances.
- PM
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dali
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Post by dali on Mar 22, 2016 15:04:00 GMT
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. The interest rate differential is around 3%. (I think it's less, but I don't have the same feel for the diurnal variation of the 5 year market, so I could be wrong.) Thus the additional annual interest is £120, and the extra interest earned in one month is £10, which coincidentally is the same as the sell out fee you were charged.
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dali
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Post by dali on Mar 22, 2016 15:09:39 GMT
The interest rate differential is around 3%. (I think it's less, but I don't have the same feel for the diurnal variation of the 5 year market, so I could be wrong.) Thus the additional annual interest is £120, and the extra interest earned in one month is £10, which coincidentally is the same as the sell out fee you were charged.
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dali
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Post by dali on Mar 22, 2016 15:21:26 GMT
Sorry about the last two posts - haven't quite got the hang of quoting!
I was trying to reply to am's point - a sell-out fee of £10 once or twice a year is more than compensated for by the extra £120 interest. That was the basis of my original query.
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sl75
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Post by sl75 on Mar 22, 2016 17:05:18 GMT
Assuming that you know in advance about any amounts you may need for "occasional withdrawals (mainly to pay for holidays!)", you may find RateSetter's "Drawdown" option useful.
This lets you set a withdrawal target, and builds up that amount from repayments that would otherwise have been automatically re-invested.
It'll even tell you what date the funds will be available by (they may be available earlier if you receive early repayment for some loans in the meantime).
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Investboy
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Post by Investboy on Mar 22, 2016 17:20:19 GMT
Sorry about the last two posts - haven't quite got the hang of quoting! I was trying to reply to am's point - a sell-out fee of £10 once or twice a year is more than compensated for by the extra £120 interest. That was the basis of my original query. I guess you can edit old post and/or delete them?
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am
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Post by am on Mar 22, 2016 18:50:43 GMT
Sorry about the last two posts - haven't quite got the hang of quoting! I was trying to reply to am's point - a sell-out fee of £10 once or twice a year is more than compensated for by the extra £120 interest. That was the basis of my original query. If you put £5,000 in in January and took £4,000 out in December to pay for Christmas the sell out fee wouldn't be £10 - it would be £110. The basic rule is that if you withdraw anything before it's been in a year RS reclaims all the extra interest. (If it has been in for less than a month RS charges more than extra interest.) For the next two years after that RS reclaims most of the extra interest ('cos the 1year market doesn't pay much more than the monthly market). If you treat the 5 year market as an instant access account you'll lose much of the extra interest. The question you need to ask yourself is whether the small amount of extra interest you get is worth the risk of being hammered by an assignment fee.
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dali
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Post by dali on Mar 22, 2016 19:17:11 GMT
Well, the sell-out fee was only £10, probably because the amount I withdrew was a much smaller fraction of my total holding than the figures you quote!
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am
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Post by am on Mar 22, 2016 21:14:35 GMT
Well, the sell-out fee was only £10, probably because the amount I withdrew was a much smaller fraction of my total holding than the figures you quote! The sellout fee was only 0.25% because the withdrawal was achieved using recently lent funds.
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dali
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Post by dali on Mar 22, 2016 21:36:18 GMT
Well, the sell-out fee was only £10, probably because the amount I withdrew was a much smaller fraction of my total holding than the figures you quote! The sellout fee was only 0.25% because the withdrawal was achieved using recently lent funds. Doesn't that rather make my case? Because I have a fairly large 5 year holding, regularly relent, I will always have recently lent funds, which will keep the sell out fees low for my occasional withdrawals.
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Post by propman on Mar 23, 2016 8:13:19 GMT
The sellout fee was only 0.25% because the withdrawal was achieved using recently lent funds. Doesn't that rather make my case? Because I have a fairly large 5 year holding, regularly relent, I will always have recently lent funds, which will keep the sell out fees low for my occasional withdrawals. If you use this for unexpected amounts that may make sense. However, you would always be better off accumulating repayments and using this (or possibly relending on monthly market depending on how that really works) for amounts you know you will need (eg balance for holidays booked before). This will make the percentage withdrawal fee from 5-year higher on the small top up if this is insufficient as you won't have the recent reinvestments, but you would still be better off than taking it all from reinvested 5-year money.
- PM
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pikestaff
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Post by pikestaff on Mar 23, 2016 8:17:32 GMT
Doesn't that rather make my case? Because I have a fairly large 5 year holding, regularly relent, I will always have recently lent funds, which will keep the sell out fees low for my occasional withdrawals. Perhaps. It depends how occasional the withdrawals are and how small they are in relation to your lending volume. Provided you are only ever taking the money out from recent loans (withdrawals work on a last-in-first-out basis) and rates do not move significantly against you, you are likely to be better off having all your money in 5 years than splitting it on some semi-fixed basis between 5 years and monthly. But you will be even better off if you can plan your cash flows. Invest all in 5 year but switch reinvestment of repayments to monthly some time before you need the money. Remember to switch back later. I think your OP did not make your strategy clear enough. Selling out from older loans can get very expensive because the adjustment is applied to the whole loan, not just the bit that is left. Suppose the only loan you've got left is the £100 balance of a loan that was £1,000 when made. If you sell out, the interest adjustment is going to be about 5 times what it would have been if had applied to just the £100. The same principle applies if you are just nibbling at your most recent loans, but the effect will be much smaller. Edit: crossed with propman
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sl75
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Post by sl75 on Mar 23, 2016 8:55:22 GMT
The sellout fee was only 0.25% because the withdrawal was achieved using recently lent funds. Doesn't that rather make my case? Because I have a fairly large 5 year holding, regularly relent, I will always have recently lent funds, which will keep the sell out fees low for my occasional withdrawals. However, the "assignment fee" may be very high. If rates available on the 5 year market have gone up in between the time you recently lent funds, and the time you use sell-out, you'll need to pay an additional fee to compensate the buyer for the difference in interest rates for the entire 5 year term. Far better to simply not make those 5 year loans once you know (a month or two in advance) that you'll be needing to get some funds out, and as mentioned in my comment a few posts back on the thread, the "Drawdown" facility will automate this for you (and start re-lending once your drawdown target has been reached.
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