Seeing inflation eroding our savings is bad enough, yet there is the further worry that the upcoming round of quantitative easing may fuel further inflation. As a saver, I’ve struggled to find a viable return for my cash, and am fed up with chasing rates that offer only marginal differentials. I am now considering an alternative that is growing in popularity.

 

Peer-to-peer (P2P) social lending is becoming an increasingly viable option for savers and investors looking for better returns. As its name suggests, P2P lenders facilitate lending and borrowing directly between individuals — those with excess cash are matched with those in need of funds — at competitive rates agreeable to both parties. By cutting out formal financial intermediaries such as banks, they are able to offer more attractive rates due to lower overheads and cost efficiencies from technology usage, as they operate via online platforms.

 

Returns offered by P2P pioneer Zopa have ranged between 5.9% and 11% in the past year, net of fees, while Funding Circle, which lends to small businesses, touts an 8.4% gross yield on its website. Newcomer RateSetter’s current rolling monthly market rate is 4.3% while its threeyear fixed rate is 6.7%, easily beating the top five-year fixed rate of 4.65% offered by conventional financial institutions. 

 

However, the popularity of P2P lenders since the credit crunch has also been very much due to consumers’ continued disenchantment with the traditional financial system and how it has failed them. P2P social lending can be seen as taking matters into one’s own hands, and the idea of a more personal connection between lenders and borrowers without the involvement of marginand profit-conscious banks, is increasingly appealing. Many also see P2P lenders bridging the financial gap created when the credit crunch froze bank lending for even creditworthy borrowers, particularly small businesses.