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Post by geoffp on Sept 4, 2014 11:02:57 GMT
Hello everyone!
Simple question to start with:
Ratesetter's homepage has a slider so that punters can calculate their return (RateWizard).
Click "lending" Top slider to £10,000 Lower slider to 60 months
Top right box says 5.7% annualised. But at the bottom it says Final Value: £12,236.12
My calculator says that £10,000 at 5.7% annualised for 5 years would be £13,194. And working backwards, Ratesetter's stated £12,236.12 would actually be £4.12% annualised.
I phoned Ratesetter and was told that they knew that the slider wasn't perfectly accurate, but they could not explain why there are such huge discrepancies. Could someone put me straight please.
I realize that the numbers change all the time but the inconsistencies remain.
Thanks
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markr
Member of DD Central
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Post by markr on Sept 4, 2014 14:33:45 GMT
Your figure assumes all repayments and interest are reinvested (compound interest). I suspect RS's figures assume something different (withdrawal of interest, or interest and capital) but I haven't done the calculation. I would have expected RS to know this, though!
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Post by geoffp on Sept 4, 2014 14:57:24 GMT
Your figure assumes all repayments and interest are reinvested (compound interest). I suspect RS's figures assume something different (withdrawal of interest, or interest and capital) but I haven't done the calculation. I would have expected RS to know this, though!
adjective
adjective: annualised (of a rate of interest, inflation, or return on an investment) recalculated as an annual rate.
So if more than 1 year, surely that implies that it must be compounded.
If I was using Ratesetter I would be using (excel) XIRR to ensure that my return is at least in line with the headline rate. I assume that others here have done this and it would be good to hear confirmation from them that they are getting precisely what they were promised.
After my unsatisfactory phone call to Ratesetter I added more money to my Zopa a/c.
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Post by chielamangus on Sept 4, 2014 16:14:31 GMT
I too found the slider giving strange and unsustainable results and was told it was there just as a guide (presumably to attract borrowers). Exact quotations depend on a lot of "individual circumstances" so RS need to factor those in via a personal quotation. Naturally, the slider suggests low interest rates ....
I have checked a few loans with XIRR and found the rate tallied with what it says on the box. But if you're in the monthly market be prepared for some nasty surprises - separate thread on that, and loads on this forum don't agree with me, but you can make up your own mind on that.
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Post by goldservice on Sept 4, 2014 16:34:20 GMT
Your figure assumes all repayments and interest are reinvested (compound interest). I suspect RS's figures assume something different (withdrawal of interest, or interest and capital) but I haven't done the calculation. I would have expected RS to know this, though!
adjective
adjective: annualised (of a rate of interest, inflation, or return on an investment) recalculated as an annual rate.
So if more than 1 year, surely that implies that it must be compounded.
If I was using Ratesetter I would be using (excel) XIRR to ensure that my return is at least in line with the headline rate. I assume that others here have done this and it would be good to hear confirmation from them that they are getting precisely what they were promised.
After my unsatisfactory phone call to Ratesetter I added more money to my Zopa a/c.
Just to reassure you, you really do get a good rate with RS if you reinvest promptly. If using the reinvestment settings, make sure that they are updated at least once a week. Look out for rate peaks at month end. RS say that my loans (all 5yr) average 6.0% and in practice I am getting about 5.85%. The difference is in my own way of annualising monthly growth, and 'cos I have sometimes held several hundred back from reinvestment as I thought the rate would rise. As for Zopa, I found that investing a larger amount takes forever, and the rates are less than RS. So I am withdrawing all interest and repayments from ZP and investing elsewhere.
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pikestaff
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Post by pikestaff on Sept 5, 2014 7:07:51 GMT
I am pretty sure RS's result is the sum off the payments made on the loan, with no reinvestment, and that the IRR of those payments will be the rate on the tin. Away from home so can't do the sums to confirm this.
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Post by geoffp on Sept 5, 2014 9:47:57 GMT
Just to reassure you, you really do get a good rate with RS if you reinvest promptly. If using the reinvestment settings, make sure that they are updated at least once a week. Look out for rate peaks at month end. RS say that my loans (all 5yr) average 6.0% and in practice I am getting about 5.85%. The difference is in my own way of annualising monthly growth, and 'cos I have sometimes held several hundred back from reinvestment as I thought the rate would rise. As for Zopa, I found that investing a larger amount takes forever, and the rates are less than RS. So I am withdrawing all interest and repayments from ZP and investing elsewhere.
Thanks for your comment.
I have a biggish a/c with Zopa which I monitor carefully. Because I was an early adopter I get a 0.5% advantage because I pay only half the usual lending fee of 1%. I am getting 6.1%, based on XIRR and taking everything into account, including unlent money. So no advantage that I can see for me to go to RS.
Generally speaking I find Zopa's lending speed fine. Most of the time my money is recycling, but three times this year I have added cash. My account has averaged 98.3% lent out for the year to date, which I think is good. But the actual return achieved is of course far more important than lending speed.
Meanwhile, returning to the subject of this thread, please could someone explain precisely what the RS slider-wizard is measuring. As it stands I find it highly misleading.
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Post by geoffp on Sept 5, 2014 9:51:05 GMT
I too found the slider giving strange and unsustainable results and was told it was there just as a guide (presumably to attract borrowers). Exact quotations depend on a lot of "individual circumstances" so RS need to factor those in via a personal quotation. Naturally, the slider suggests low interest rates .... I have checked a few loans with XIRR and found the rate tallied with what it says on the box. But if you're in the monthly market be prepared for some nasty surprises - separate thread on that, and loads on this forum don't agree with me, but you can make up your own mind on that. Thanks for that. You are the first person to confirm that you do get what is promised. I will look for the nasty surprises thread...
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Post by chielamangus on Sept 5, 2014 10:15:01 GMT
You get what is promised from the day it is invested to the day it is returned. And then there are the days between loans .... There is a comparison under general P2x discussion of rates of return using XIRR for various P2P operators by various members of this forum. p2pindependentforum.com/thread/817/rates-return-compared |
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sl75
Posts: 2,092
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Post by sl75 on Sept 5, 2014 10:53:17 GMT
Hello everyone!
Simple question to start with:
Ratesetter's homepage has a slider so that punters can calculate their return (RateWizard).
Click "lending" Top slider to £10,000 Lower slider to 60 months
Top right box says 5.7% annualised. But at the bottom it says Final Value: £12,236.12
My calculator says that £10,000 at 5.7% annualised for 5 years would be £13,194. And working backwards, Ratesetter's stated £12,236.12 would actually be £4.12% annualised.
I phoned Ratesetter and was told that they knew that the slider wasn't perfectly accurate, but they could not explain why there are such huge discrepancies. Could someone put me straight please.
I realize that the numbers change all the time but the inconsistencies remain.
Thanks As of right now, it shows 5.9% annualised and £12,277.05 final value [and now £12,269.92 - this seems to change minute by minute as the markets fluctuate...] An initial investment of £10000 for up to 60 months would be put on the 60 month market, but any monies returned after 1 month cannot be re-invested on the 60 month market, as there may well be a balance outstanding at the end of the 60 months... so for the first 2 years, payments would be re-invested in the 36 month market, then the 1 year market, and finally the rolling monthly market for the last year... I put a quick spreadsheet together to simulate that, and it came out with a result "reasonably close" to the stated figure. The effective rate being achieved would thus START at 5.9% or 5.7% or whatever (the rate immediately available on the 60 month market), but then fall as a higher proportion of the money is re-invested at a lower rate... If you move the slider a notch to the right, it has a "long term" position, where no final total is shown, but the initial rate remains the same as for a 60 month investment.
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Post by geoffp on Sept 5, 2014 13:10:50 GMT
As of right now, it shows 5.9% annualised and £12,277.05 final value [and now £12,269.92 - this seems to change minute by minute as the markets fluctuate...] An initial investment of £10000 for up to 60 months would be put on the 60 month market, but any monies returned after 1 month cannot be re-invested on the 60 month market, as there may well be a balance outstanding at the end of the 60 months... so for the first 2 years, payments would be re-invested in the 36 month market, then the 1 year market, and finally the rolling monthly market for the last year... I put a quick spreadsheet together to simulate that, and it came out with a result "reasonably close" to the stated figure. The effective rate being achieved would thus START at 5.9% or 5.7% or whatever (the rate immediately available on the 60 month market), but then fall as a higher proportion of the money is re-invested at a lower rate... If you move the slider a notch to the right, it has a "long term" position, where no final total is shown, but the initial rate remains the same as for a 60 month investment. Yes - thank you. What you say seems correct.
Not at all obvious and IMO needs to be put right, because as it stands it's misleading.
And what about the button which allows to choose "at least" (or "up to"). Surely, if you are offering to lend for >60 months, then you wouldn't expect RS to assume that you would be re-investing repayments at a shorter-term rate?
Anyway, I can honestly say that the rate-wizard, and RS' inadequate explanation after I phoned, did stop me investing as I thought I would have no come-back if the actual return was only 4.1%. Thus it was a negative advert.
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Post by geoffp on Sept 5, 2014 13:18:29 GMT
You get what is promised from the day it is invested to the day it is returned. And then there are the days between loans .... There is a comparison under general P2x discussion of rates of return using XIRR for various P2P operators by various members of this forum. p2pindependentforum.com/thread/817/rates-return-comparedGot to that, good.
Seems that RS has a small advantage over Zopa, though at least person (spiral) has Zopa ahead. Thanks for the pointer.
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spiral
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Post by spiral on Sept 8, 2014 10:22:50 GMT
You get what is promised from the day it is invested to the day it is returned. And then there are the days between loans .... There is a comparison under general P2x discussion of rates of return using XIRR for various P2P operators by various members of this forum. p2pindependentforum.com/thread/817/rates-return-compared
Seems that RS has a small advantage over Zopa, though at least person (spiral) has Zopa ahead.
I did (at least I think I did) imply though that the figure was boosted due to cashbacks and rate promises. Because Zopa pay these up front, the same bonus will not apply and the returns will be considerably lower 1 year down the line whereas at RS the rate stated for the current crop of loans will be the same.
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Post by geoffp on Sept 8, 2014 10:57:15 GMT
I did (at least I think I did) imply though that the figure was boosted due to cashbacks and rate promises. Because Zopa pay these up front, the same bonus will not apply and the returns will be considerably lower 1 year down the line whereas at RS the rate stated for the current crop of loans will be the same. Surely cash in advance actually improves your return. You are then free to re-invest the payment. Not sure what you mean by "the same bonus will not apply...". Maybe I'm just being a bit slow? What I do know is that I do get about 6.2% IRR from Zopa (0.5% fee) so my judgement says that for the moment, that doesn't warrant a switch to RS.
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spiral
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Posts: 908
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Post by spiral on Sept 8, 2014 16:10:40 GMT
I did (at least I think I did) imply though that the figure was boosted due to cashbacks and rate promises. Because Zopa pay these up front, the same bonus will not apply and the returns will be considerably lower 1 year down the line whereas at RS the rate stated for the current crop of loans will be the same. Not sure what you mean by "the same bonus will not apply...". Maybe I'm just being a bit slow?
My return included as income, the cashbacks/ rate promise payments received during that period. As that money is credited as a one off, the same loans will not produce that payment next year. E.g. If I had £1000 invested and received interest, cashback and rate promise payments of £80, £10 and £10 respectively, I would have quoted a return of 10%. Next year only the £80 will be relevant as the cashback and rate promise payments are no longer relevant so on a like for like basis, I would report 8%. In my case, the bonus payments amount to about 10% of the income received so would knock my 5.5% return to closer to 5% next year. (75/25 longer shorter split)
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