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Post by ravado on Jul 18, 2015 11:41:30 GMT
I've been doing Peer to peer Lending for around 18 months and in the early days put around half of my cash in the Ratesetter 5 year market at an average of 5.9%. This was because platforms like Funding Circle take much longer to invest. Now I'm keen to get some of my cash back to invest in more profitable platforms like Savings Stream and money Thing.
It is interesting to compare the liquidity of Ratesetter verses Funding Circle. With both you can switch off reinvestment of capital and interest. However, the return of cash is quite slow. If you want to dig in further then Funding Circle allows you sell on the secondary market and potentially make some extra profit by adding a premium of up to 3% (depending on how good the original interest rate was).
This is where Ratesetter bothers me. Today, I got quotes for what they call 'Sellout' (sounds rather negative?). To sell out £1000 I was quoted a fee of £9.88, £2000 was £24.41. £25000 was £737.33, a massive disincentive to cash in! Note that the fee isn't pro rata but increases more quickly as the amount withdrawn increases. I'm not sure how they can justify these 'fees' and would suggest that investers think twice before tying up too much cash in the Ratesetter (Rubbish Sellout?) 5 year market!
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Post by pepperpot on Jul 18, 2015 12:44:15 GMT
Going off those figures it would be worth while cashing in £1000 25 times. Would there be a similar reduction pro rata for a £100 cash in? (and do it 250 times)
But yes, given the hefty exit fees I consider RS investments effectively 'locked in' and I've only ever put in what I definitely do not need back for 5yrs.
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adrianc
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Post by adrianc on Jul 18, 2015 12:56:14 GMT
Firstly, are you looking at the right figure? Subtract the outstanding interest (interest you're due but haven't been paid yet) from the fees due, and you should get the difference between the capital withdrawn figure and the big bold amount-you'll-receive figure. THAT's what it's actually "costing" you, in terms of the difference between your balance and the amount you'll receive - not the fees figure. The sell-out cost depends on the rate for the loans you've bought into. If it can be re-sold, then you pay the difference between the resale rate (on the yearly or monthly markets) and the interest you've been paid (on the five year). That's a gap, obviously, especially if you had mainly higher-rate loans given that the rate is very low currently. I've got just under £3.5k on the 3yr currently - to get that out would cost me £12. If I wanted £1k from my 5yr, it'd cost me 17p. If I wanted £2,500, it'd cost me £2.40. If I wanted £25k, it'd cost me £156. Lucky you, you've clearly got fewer 5yr contracts at rates near the market than I have... All of this information was clearly available when you invested money in the five year market. Is it worth moving that money to higher-interest platforms? Well, that depends on a few things - including the cost of cashing in your products early... But, as a reminder of the mainstream alternatives... Here's a five year fixed-rate savings bond, one of the highest-rate in the UK at the moment, according to interest-rates.org.uk www.chartersavingsbank.co.uk/Products/FixedRateBondYep, 3.05% over five years. And that's a totally locked-in product, you CANNOT get your money back within the five years. At all. Come hell or high water. |
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Post by ravado on Jul 18, 2015 13:06:21 GMT
Firstly, are you looking at the right figure? Subtract the outstanding interest (interest you're due but haven't been paid yet) from the fees due, and you should get the difference between the capital withdrawn figure and the big bold amount-you'll-receive figure. THAT's what it's actually "costing" you, in terms of the difference between your balance and the amount you'll receive - not the fees figure. The sell-out cost depends on the rate for the loans you've bought into. If it can be re-sold, then you pay the difference between the resale rate (on the yearly or monthly markets) and the interest you've been paid (on the five year). That's a gap, obviously, especially if you had mainly higher-rate loans given that the rate is very low currently. I've got just under £3.5k on the 3yr currently - to get that out would cost me £12. If I wanted £1k from my 5yr, it'd cost me 17p. If I wanted £2,500, it'd cost me £2.40. If I wanted £25k, it'd cost me £156. Lucky you, you've clearly got fewer 5yr contracts at rates near the market than I have... All of this information was clearly available when you invested money in the five year market. Is it worth moving that money to higher-interest platforms? Well, that depends on a few things - including the cost of cashing in your products early... But, as a reminder of the mainstream alternatives... Here's a five year fixed-rate savings bond, one of the highest-rate in the UK at the moment, according to interest-rates.org.uk www.chartersavingsbank.co.uk/Products/FixedRateBondYep, 3.05% over five years. And that's a totally locked-in product, you CANNOT get your money back within the five years. At all. Come hell or high water. Thanks for this adrianc, what you say does make sense. Because my rate is higher than the current market rate I need to pay the difference. You are also right in hinting I should have 'read the small print'! My main point is to warn others to think carefully about tying to much in the 5 year market.
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c88dnf
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Post by c88dnf on Jul 18, 2015 13:55:08 GMT
This is where Ratesetter bothers me. Today, I got quotes for what they call 'Sellout' (sounds rather negative?). To sell out £1000 I was quoted a fee of £9.88, £2000 was £24.41. £25000 was £737.33, a massive disincentive to cash in! Note that the fee isn't pro rata but increases more quickly as the amount withdrawn increases. I'm not sure how they can justify these 'fees' and would suggest that investers think twice before tying up too much cash in the Ratesetter (Rubbish Sellout?) 5 year market! It bothers me too, but for exactly the opposite reason, the key being that, as you suggest, investors should think properly about what they are committing to. Note that - it's a commitment on the investor's part, not just the P2P provider's. In my view, term deposits should be exactly that: you pays your money in having thought it through and then that's it. No get out clauses: no early "sellout". To try to treat 3 and 5 year investments like a current account is bound to lead to tears.
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adrianc
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Post by adrianc on Jul 18, 2015 18:50:36 GMT
There's a bit of a difference, in that - 1yr market excepted - when you put your money in, you don't get it all back in month 60. You get some of it back in month 1, a bit more in month 2, etc etc. If you then reinvest it in the same market (so you get roughly the APR you expect to get), you'll find at month 60 that you're still only going to get your paws on 1/60th of your money that month.
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spiral
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Post by spiral on Jul 18, 2015 19:18:54 GMT
Sell out was discussed at some length a year or so ago.
RS aim to discourage "playing the system" by ensuring you only get the rate aproximately equivalent to the term that you have loaned for. I don't know the exact detail but in essence, if you have a 5yr loan at 6% and sellout within the first year, you'd get the equivalent monthly rate, say 2.5% (as that's their closest market to that timeframe).
Your sellout fee includes repaying this excess interest.
IIRC, this created an anomoly whereby if you cashed out very close to term, you'd pay more in fees than the remaining loan value.
A loan cashed out after say 4.5 yrs has to repay 54 months worth of excess interest back because for those 54 months you'd received the 5yr rate when RS consider you to only have really been elegible for the 3 yr rate.
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pip
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Post by pip on Jul 18, 2015 23:39:55 GMT
I've been doing Peer to peer Lending for around 18 months and in the early days put around half of my cash in the Ratesetter 5 year market at an average of 5.9%. This was because platforms like Funding Circle take much longer to invest. Now I'm keen to get some of my cash back to invest in more profitable platforms like Savings Stream and money Thing. It is interesting to compare the liquidity of Ratesetter verses Funding Circle. With both you can switch off reinvestment of capital and interest. However, the return of cash is quite slow. If you want to dig in further then Funding Circle allows you sell on the secondary market and potentially make some extra profit by adding a premium of up to 3% (depending on how good the original interest rate was). This is where Ratesetter bothers me. Today, I got quotes for what they call 'Sellout' (sounds rather negative?). To sell out £1000 I was quoted a fee of £9.88, £2000 was £24.41. £25000 was £737.33, a massive disincentive to cash in! Note that the fee isn't pro rata but increases more quickly as the amount withdrawn increases. I'm not sure how they can justify these 'fees' and would suggest that investers think twice before tying up too much cash in the Ratesetter (Rubbish Sellout?) 5 year market! The 5 year rate is higher for a reason, the longer you lend the longer there is for something to go wrong and therefore the lender is taking on more risk. On top of this the lender should get some reward for removing the liquidity from their money and in turn providing the borrower with assured cashflow for the period. You have enjoyed the higher rate for 18 months, which is considerably less than 60 months which is what the term is. Therefore to end the deal early of course you should have to pay a fee. If this wasn't the case everybody would lend for 5 years and cash out when they want the money. Are the fees a bit too high, err maybe, but when I invest for 5 years I invest for 5 years. I can't imagine it makes much sense for you to sell out now to re-invest in another platform. And as others have pointed out you get access to the funds over the period of the loan. One thing to note in terms of risk, if you read ratesetters terms all deposits are potentially for the term of the loan. This is because depositors in the monthly and yearly market are lending for loans which are longer than their deposit. The deposits are rolled over each month from one lender to another and if there was not to be the liquidity one month to purchase the loans which need rolling over the original lender will not get their money back until the borrower repays the loan. In all likelihood this would be in a situation where there was a flight of cash from ratesetter in anticipation of the provision fund not being sufficient to meet claims. Therefore be careful to understand that the shorter product lengths on ratesetter are caveated by there being sufficient liquidity.
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duck
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Post by duck on Jul 20, 2015 6:32:33 GMT
I view investing as just another facet of life.
Get married in haste and you will regret it when the divorce takes place. Life means life. If you take the early get out the financial costs will always be greater than expected ..... but did you think of that when you tied the knot? The 'younger model' may have obvious visible attractions but sometimes the long term prospects are actually worse than those you already have.
What gets me animated is when the Contract Terms are changed. Gideon and I had a 5 Year contract .....and then a couple of weeks ago he changed the Contract Terms (with respect to Dividend Tax) and I have no option or 'get out clause' ...... now that is what I call 'unfair' 
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Post by uncletone on Jul 20, 2015 8:34:30 GMT
Forty six and a half years and counting. ::smug::
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am
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Post by am on Jul 20, 2015 10:57:52 GMT
Going off those figures it would be worth while cashing in £1000 25 times. Would there be a similar reduction pro rata for a £100 cash in? (and do it 250 times) But yes, given the hefty exit fees I consider RS investments effectively 'locked in' and I've only ever put in what I definitely do not need back for 5yrs. My guess would be that RS has ordered individual contracts so that the cheapest (recent - therefore less interest to repay; high rate - therefore small market adjustment to rates) contracts are sold out first. So the more you withdraw the greater the percentage cost. I don't consider RS a liquid investment - the combination of exit fees, interest clawbacks and market rate adjustments makes exit punitive - so I'm not putting all that much in, and mostly sticking to the monthly and one year markets.
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am
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Post by am on Jul 20, 2015 11:11:53 GMT
Having experimented with the Sellout feature it seems that my fear that the market rate adjustment only applies when it works against us was justified. Due to the recent cashback current rates are well below the rates on my contracts, so a market rate adjustment should get me a 10% or so uplift, and the contracts are recent enough that there's relatively little interest clawback applying. But while I can get 100% cash out for small quantities it won't give me a capital gain.
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Post by westonkevRS on Jul 20, 2015 15:14:54 GMT
You should be happy. I'm not in charge of the sell-out process or cost. The current charges avoid people " gaming the system", e.g. why would anyone invest in the 3 year markets on some of our competitors sites when they can get more than 1% in the 5-year market and if they need the cash earlier sell-out. But that's not my concern. My philosophy is that bad debts, defaults or the strength of the Provision Fund is not the primary business risk for RateSetter or our lenders. The risk is that come a recession or a dangerous rumour, too many lenders leave the markets because it's too easy and cheap. Where sell-out is too easy platforms will be forced to change the rules just when everyone wants their money (remember I said that here, now!), maybe even lock-in. This would be catastrophic to trust and probably be game over. Personally I'd prefer to rule out this business risk by making sell-out near impossible. Then come the recession if lenders become nervous a platform might do less business but money couldn't run from borrowers causing a lock-down. Consistent rules that lenders know and understand when they lend their money. There's a reason the no thou market pays less that the 5-year There is a reason banks and building societies have near zero allowance on their bonds for departure. Not only to give them certainty of funding, but protection in cash strapped recessions. You guys should hope that your friendly Marketing and Product people rule RateSetter.... And I stay managing retail bad debt. Or even leave, that'd make you all very happy! @ westonkevRS |
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Post by nickthefool on Jul 20, 2015 15:18:39 GMT
I agree with the sentiment, although I feel that fees that mean you get back less than your initial capital (which was the case when I looked into withdrawing from the monthly market a couple of months ago) are a little excessive.
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adrianc
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Post by adrianc on Jul 20, 2015 15:42:48 GMT
Cashing in from the monthly market...? Umm...
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