Hard-pressed savers are increasingly prepared to face the risks of unprotected fund-exchange portals as a means of making better returns on their deposits.
Research released last month by Zopa shows that households saved £18.5 billion between January and March – double the amount reached during the height of the financial crisis.
But consumers continue to lose out in real terms as the annual rise in the cost of living reduces the spending power of consumers’ cash by more than they are able to recoup through their savings.
Rates on savings accounts have been savaged in recent months by a government lending scheme that has supplied high-street banks with cheap funds and stripped the competitiveness from retail deposits.
Average returns on easy-access savings accounts have fallen to below 1%, while the Treasury’s own savings arm, NS&I, is cutting rates on its ISA and Premium Bonds.
Zopa's report, based on findings by the Centre for Economic and Business Research (CEBR), suggests that more Brits are prepared to take risks in peer-to-peer lending as the gap between falling returns on savings accounts and rising inflation continues to grow.
Online peer-to-peer lending portals allow investors who are seeking greater returns to make arrangements with borrowers who are looking for cheaper rates than those offered by banks.
The report found that peer-to-peer lending provided investors with average returns of around 3.4% above inflation – far above the pitiful returns now available on traditional savings accounts.
The largest peer-to-peer lenders operate stringent credit checks upon new borrowers, and have historically claimed very low default rates.
But unlike standard accounts, investors’ deposits are not guaranteed by the Financial Services Compensation Scheme. The FSCS covers deposits in most banks and building societies for up to £85,000 per person per institution (read more).
The industry is set to become regulated by the Financial Conduct Authority from 2014. Nevertheless, Zopa’s CEO, Giles Andrews, said that it would take some time to change consumers’ financial habits.
"At presents many households are losing out because banks are not providing competitive savings rates," he said.
"Be smart with your money to ensure you get the best deal."
Keith McDonald
Which4U Editor
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