Personal maximum in RateSetter - where next?

The real question you have to answer is where are interest rates in general going in the next 5 years. 5% sounds OK now but us old fogies can remember 15%. The past few years have been the exception, but is this the new normal? What will be the mid and long term consequences of the unprecedented experiment of Monetary Easing? Is it possible that there will be no adverse consequences and if there are how will they manifest themselves. Personally I would not lock any money up for 5 years.

Why waste money in a short term market that offers lower rates? Instead, put plenty of money into many loans on platforms that have liquid secondary markets without the punitive costs that RateSetter has for selling before the end of term. Next worst after RateSetter is Zopa for cost of selling. Both force you to take a capital loss if rates have increased but take from you the capital profit that is available if rates have dropped, in addition to explicit charges. RateSetter also punishes you with a change to a shorter term market for the whole term you've had the money invested, while Zopa does it only for the remaining term.

For example:

• Ablrate: you can probably exit short term with a capital profit as well as your interest, though it'll take a little longer to get any particular amount invested and to sell than some. You can choose to sell at a capital loss to boost the buyer rate but at present that isn't needed. No charge to buy or sell. A mix of loan terms, from a few months to years.
• MoneyThing: you can currently expect to complete a sale within a few hours of making the money available, except in the middle of the night. You can't sell at a capital loss, you either sell at par or not at all. No charge to buy or sell. If interest rates rise it is likely to become harder to sell but it'll take a significant drop to reduce liquidity materially. Plenty of loans with terms in the six month range that could make selling unnecessary and some with shorter terms. One of the product types is portfolio loans that you need to renew every six months to stay invested, by just ticking a box near the time. Don't tick and your money is returned at maturity. A ladder of those can be very convenient.
• SavingStream: similar to MoneyThing, though typically longer terms, still most at a year or less. Individual loans are more likely to be extended at the end than at MoneyThing so exit on a particular time is less assured, this is due to the nature of typical loans being for construction projects that can overrun or take a while to sell.

All three happen to offer interest rates that are well above those you've been experiencing, so you can to some extent have both higher rates and higher desirable liquidity. There are other options as well, those three just happen to be some I'm quite familiar with.

It's reasonably easy to structure things so that you have a ladder of loans regularly ending so you don't need to sell to get short term money or take a short term product. You just don't reinvest some of the maturing loan money. So you would say try to buy initially a set of loans maturing in three, six and twelve months, giving you three pre-planned chances to get short notice capital money by not reinvesting. As time passes you keep buying and gradually you have a collection with many loans maturing each month that you can choose not to reinvest if you need more than just the interest flow.

So forget monthly markets, learn about bond ladders and use them to get the liquidity you want without the interest rate cost you're familiar with.

The places that offer very short term markets are in essence looking for lazy investors, those who must diversify due to their investment size or those who think there's some particular merit to the platform to justify taking the big interest rate hit, and who presumably don't know about bond ladders or what other platforms offer. Nothing wrong with providers doing that but you don't need to be one of the buyers, you can learn instead.

Lending works and ratesetter are pretty similar, there is always PM or PP if you want something a bit different than p2p 

I agree entirely on rates.

You can take a monthly income on RS if you want to.  I look after an RS account for my mum.  All the money is in 5 years.  I have reinvestment set to capital only (with the rate set manually) and I have it set to auto withdraw the balance in the holding account once a month. 

Auto withdrawals happen after your market orders for the day are placed. To make sure that small amounts of capital do not get withdrawn by accident (although this does not really matter), I make sure that auto withdrawal happens on a date when the capital repayment will be at least £10 and therefore will be put back onto the market.

Property Moose & Property Partner. PM has a board in the equities section of the forums, PP has a thread in the general equities board

And for a bit more completeness on that, the typical 1% a month rates of the three places I mentioned are not compounded, so they are paying more than 12% a year before defaults. Of course Zopa has a protection fund that might be sufficient so its rate might survive defaults. The three I mentioned have security of various sorts that may do the same thing over a longer time span. Which way is best would depend in part on how bad things get, with security being the ultimate winner if protection funds are used up. Though since all three pay more than twice the rate of Zopa there's quite a bit of extra margin in there to cover the inevitable issues.

A bond ladder can be constructed at any platform that doesn't insist on every loan you buy ending at the same time. What isn't necessary is using short term lending at lower rates when only relatively modest amounts of capital might be needed at short notice and the longer term rates at the same or other platforms can be used instead, taking instead of reinvesting the capital at maturity.

I don't ignore the risk factors of different platforms or terms, rather I think that the lending risk is likely to be lower from the secured lending platforms in very adverse situations because of the security often offered, which has greater total loss-absorbing capacity than protection funds. Then I consider the trade off between those and other risks and returns. Each person should do the same and pick the mixture that meets their needs and preferences.

Personally I think that the 12% or so platforms today are broadly offering decent trade offs for 3-12 month and sometimes longer terms compared to the 5-6% or so for three to five years or 0.5-2% for short terms platform options. Not necessarily for all individual loans, though, there are some whose blend I do not think is a good enough deal to get my money.