Lending Works launches 6% Rate Lock for savers
The peer-to-peer platform is offering to fix returns for a limited time.
Peer-to-peer company Lending Works is offering to fix returns for a limited period with its new Rate Lock.
It will allow investors lending money the chance to lock in to a 5% return for up to three years or 6% return for up to five years, on money lent between Monday 26th January and Sunday 1st March.
Lending Works, like most peer-to-peer platforms, usually offers projected rates, which can vary according to supply and demand. But in a break from the norm the firm is committing to fix the returns for investors that lend money during the Rate Lock offer period.
How the Rate Lock works
You can invest during the Rate Lock as normal for as little as £10.
Lending Works will automatically lend out the money you put in on your behalf in small chunks to different borrowers at the fixed rate chosen.
The firm is pretty confident all the money invested will get lent out to borrowers and start earning interest as it has seen an “unprecedented” surge in demand from what it calls "high-quality borrowers" in recent months.
Returns will be made up of a mix of interest and capital and you can choose to be paid an income monthly or to reinvest the money using the Auto Lend feature. But bear in mind money lent outside of the Rate Lock period might not be at the same fixed rate you put it in for.
The Rate Lock deal works like a fixed rate savings bond, but with a bit more flexibility as investors can sell on their loan parts (subject to a 0.6% fee) to get their money back early through the Quick Withdraw facility.
Understanding peer-to-peer
Peer-to-peer platforms like Lending Works act as financial matchmakers.
They link savers willing to lend cash with borrowers in need of credit, cutting out banks and building societies, which means each side tends to get a better deal.
These platforms have grown in popularity over the last few years as lending has dried up and saving rates have plummeted at traditional banks and building societies.
Lending Works is a relatively new player in the peer-to-peer market – it launched in January 2014 – but it has facilitated over £5 million of lending.
However, there are risks to consider.
Investments made through peer-to-peer platforms like Lending Works aren’t covered by the Financial Services Compensation Scheme, which guarantees up to £85,000 worth of deposits per individual per institution.
So peer-to-peer investments aren’t protected in the same way as traditional savings accounts should the company go under.
Another thing that could impact you is bad debt, where a borrower falls into arrears or defaults on their loan.
However, Lending Works, like other established peer-to-peer companies, spreads risk by lending money in small chunks to lots of different borrowers and has a provision fund (currently worth £137,732) to step in should the worst happen.
Lending Works also has a unique set of insurance policies that protect against a range of risks affecting borrowers’ ability to repay loans, including accidents, illness, death and loss of employment.
How the rates compare
So how do the Rate Lock returns from Lending Works compare? Well as it stands they can’t be beaten by any traditional savings account right now.
At the moment the top five-year fixed rate savings bond come from Secure Trust Bank and pays 3.03% on deposits from £1,000, while the top five-year fixed rate cash ISA from Virgin Money pays 2.5% on deposits from £1.
And for savers looking at three-year fixed rates it’s the same story. The top three-year fixed rate bond is the NS&I 65+ Guaranteed Growth Bond, which pays 4%, but is only available to over-65s. For everyone else Secure Trust Bank offers the best rate of 2.51% on deposits from £1,000. While the top three-year fixed rate cash ISA available from Virgin Money pays 2.15%.
So the Lending Works 6% five-year Rate Lock and 5% three-year Rate Lock beat anything you can get from a bank or building society at the moment over the same terms.
But what about other peer-to-peer platforms?
RateSetter is currently offering a rate of 4.9% on its three-year income and 5.9% on its five-year income products, while Zopa is offering a rate of 5.1% over five years and 4% over three years.
These rates are closer to what’s on offer from Lending Works but they are projected returns, so aren’t guaranteed.
The only other way you could match the 5% rate is through a current account.
The Nationwide FlexDirect account pays 5% in credit interest on balances up to £2,500 for 12 motnhs. The account offers easy access but you need to deposit £1,000 a month to qualify for the interest.
Or there’s the TSB Classic Plus, which also offers 5% in-credit interest but on balances up to £2,000. However, unlike Nationwide the rate doesn’t fall away after 12 months.
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