Last updated in May 2020
In this Ratesetter review, I am investigating one of the major peer-to-peer (P2P) lending companies. P2P lending is one of many options for investing money. While the industry is still relatively young, it is nonetheless worth considering for investors.
Obtaining high interest rates while minimising risk is one of the most common investment strategies. If you are wondering whether Ratesetter could be the way to make the most of your money, read my Ratesetter review below.
Update: Due to COVID-19 I recommend holding off investing in P2P lending until the situation calms down.
This post contains affiliate links. Should you make a purchase or sign-up through my links, I will receive a commission at no extra cost to you.
Monethalia does not offer financial advice. Should you take any action based on the information provided, Monethalia will not be liable for the outcome.
Table of Contents
What is peer-to-peer lending?
P2P lending means lending money to another person without involving a bank. Broadly speaking, lending to family members and friends also falls under P2P lending. However, when speaking about P2P lending, people generally mean lending money to strangers via a website.
Because there is no bank involved, you will get higher interest rates from the money you lend to another person. Equally, borrowers can lend at lower costs. This is possible because P2P platforms have lower expenses than banks.
Ratesetter is one of the major P2P lending companies and, in fact, the most popular one in the UK. Over 700,000 investors or borrowers have used the platform since it was established in 2010.
You can use Ratesetter to invest money or to borrow money. This Ratesetter review focusses on using their service as an investor.
Ratesetter review – security
Ratesetter is a legit company and one of the major peer-to-peer lending companies. They have an excellent Trustpilot rating with 91% of users giving Ratesetter five stars.
Peer-to-peer lending comes with an inherent risk of losing money. You should never invest money that you cannot afford to lose. That being said, Ratesetter does a good job at minimising the risk.
They have provision fund which covers for borrowers that are unable to repay their loan. This means that in the event that the loans you are invested in default, Ratesetter will still pay you out. On their website, Ratesetter even states that no investor has lost money with them so far.
Ratesetter offers different options for investors:
The difference lies in the exit fees associated with each fund.
Exit fee means that you will pay a fee when you want to withdraw your money. You pay this fee only once regardless of the amount you have invested or the length you have been investing.
The exit fee is lowest for the option with the lowest interest (access). Conversely, the fee is highest for the account with the highest interest. Therefore, if you want a good interest rate, you have to accept higher exit fees.
High exit fees matter less the longer your money stays invested. This is because each month your invested money will earn interest but the fee is only paid once.
Set your own rate with Ratesetter
Ratesetter would not be called Ratesetter if you could not set your own rate. To do so, simply click on the red pencil located in the upper right corner:
You can then enter your preferred interest rate. However, if you set your rate too high, it may not be matched and you will earn zero interest.
There is an option to cancel unmatched investments but fishing for a good rate can be time consuming.
What happens if you want your money back? If you want to withdraw your money from Ratesetter, the method differs depending on where your money is. It could be
- in an active loan
- in your holding account
The holding account is where your money ends up when a loan has been repaid. While your money is in the holding account, you do not earn interest on it so you should either re-invest or withdraw. Withdrawing from your holding account is simple, all you have to do is literally withdraw.
Normally, your money is automatically re-invested, unless you tell Ratesetter otherwise. This means your holding account will be empty most times.
If your money is being loaned when you want to withdraw, you first have to request a release. This means you cannot immediately withdraw. It is understandable though as your money though as you have lent your money to somebody else.
Usually, investments become released within a week. After this, you are free to withdraw but keep in mind that you will be paying an exit fee.
Friend referral scheme
Ratesetter has a very strong friend referral scheme. The offer varies but you can expect to make £25-£100 from referring friends to Ratesetter. Naturally, your friend also gets a bonus.
This outstanding offer is what makes Ratesetter worth using. Getting an extra £100 for £1,000 invested means you will be getting an interest of 14% rather than just 4%.
Pros and cons of Ratesetter
Ratesetter is one of the major peer-to-peer lenders and has several strong points:
- A provision fund aiming to protect investors from losing money
- The website is easy to use
- Higher credibility due to being one of the main players in the field
- Profitable friend referral scheme
There are also some disadvantages associated with Ratesetter:
- You have to pay an exit fee when withdrawing money
- The interest rates are comparatively low
Ratesetter review summary
Ratesetter is an established peer-to-peer company that is less risky than comparable investments due to the provision fund. However, although no customer has lost money with them so far, your investments are still at risk.
Overall, the low interest rates probably do not justify investing with Ratesetter. A well-diversified index fund, for example, would earn you around 7% interest (on average). What makes Ratesetter worth considering is the excellent friend referral scheme.
Taking advantage of their sign-up offer bumps the interest rate up to something like 14% which is amazing. I recommend keeping your money invested with Ratesetter for a year to obtain the bonus and then withdraw.
If you are interested in signing-up, you can use my link for a £100 bonus.
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