For all the resilience the UK economy has shown, there is no doubt that this year's ISA season is set against a backdrop of uncertainty. Whatever the pros and cons, Brexit, and a lack of clarity on what our future economic relationship with the EU will look like, has left us at a crossroads.
What's an ISA and why is Rate Lock so important?
We’ll start from the top, a.k.a. A short history of nearly everything you need to know about ISAs.
To get a competitive rate that can result in the cumulative gains shown above, you're probably going to have to look away from traditional banks and invest in an alternative, such as peer-to-peer lending. That’s us. Hi.
By quick comparison, on £20,000, a standard 1.5% ISA will earn you only an extra £11,262 over 30 years in contrast to the £86,439 above.
So, how can Lending Works provide higher returns?
We loan your money to borrowers, just like banks. The difference? We give the borrowers fairer rates and we give you a bigger share of the interest paid on your investment. It’s a win-win.
That week, 1,000 creditworthy borrowers apply, and are approved, for 1,000 loans at 10% APR.
Your £20,000 investment is pooled with all our other investor funds and diversified over the 1,000 borrower loans.
As the 1,000 borrowers repay your £20,000 in monthly instalments, their repayment plus the 6.5% interest comes straight to you (you can have this popped into your current account, or we’d recommend auto-reinvesting to take advantage of ISA’s tax-free cumulative interest discussed above).
To be fully transparent, in this scenario we’d keep the 3.5% difference in interest between the borrower 10% APR and your 6.5% AER. This allows us to help protect you against losses on your loans, build infrastructure, hire staff, and implement industry-leading security. It also allows us to develop a successful, ethical business: we’ll always put you before our own profits.
Of course, as with all investments, your capital is at risk.
To read more about how we mitigate agaist risk, click here. It'll tell you all about our triple-layered protection (which we've called the Lending Works Shield).
Everybody wants your ISA savings. Whether it’s old school banks, higher-risk investment portfolio management firms, peer-to-peer lending platforms, or the myriad other options. Like we said, your money makes the guys who look after your money, money.
There are two main things to look out for from the guys who look after your money:
- Who gives you the best rates?
- Who has the most balanced risk vs reward?
Let’s say you understandably want a better rate than offered by banks but aren’t comfortable with the high risks or volatility involved with other investments, that’s where peer-to-peer lending comes in. It’s a cosy middle ground. If banks are worn-in slippers and stocks and shares are kitten heels, we’re your gym shoes.
However, whilst everyone wants to look after your investment, at this time of year there are also an influx of investments being made:
Supply and demand has entered the chat.
This influx of investment generally drives down market rates on peer-to-peer ISAs. There’s suddenly a lot of money to loan out but only a consistent amount of borrower demand.
With peer-to-peer investing, rates can vary from week to week based on this supply and demand. Additionally, during such a period, there’s also a chance your investment could take a few extra days to be loaned to borrowers. If the rates change whilst your investment is in a loan queue, your investment will be matched at the current rate at that time.
A layman’s sequence of events:
- Rates are 6%
- You invest £20,000
- 4,000 other people also invest £20,000 because it’s the end of the financial year
- This abundance of cash dollar can’t all be lent out immediately because there aren’t enough borrowers
- Your £20,000 goes into a queue
- Rates drop to 4% due to investor volumes
- Your £20,000 reaches the end of the queue
- Your £20,000 is loaned at 4%
Does it matter? On £20,000 over thirty years, an AER drop of 2% would cost you around £50,000 (assuming auto-reinvestment at an equivalent rate).
So, why did we explain all that? Well, it’s hopefully helpful to someone. For something as simple as ‘putting money away to make interest’ everyone sure has managed to make it complicated to navigate.
Oh, we also mentioned it because we’re holding a two-month Rate Lock.
Some providers will offer sign-up or transfer bonuses or free gifts. That’s nice and all, but it can feel a bit like a distraction, ‘one sweet now or two sweets later.’ Only instead of sweets it’s £500 now or potentially tens of thousands later, and we’re big-picture people.
We don’t want you to be caught out.
Over ISA season, regardless of supply and demand, our rates will stay at a competitive 6.5% and 5% respectively. This means, providing you don't wait until the last week or so, you can be confident the entirety of your investment will get matched at the advertised rates.
The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
The Lifetime ISA (LISA), announced in 2016, would prove to be one of George Osborne’s last flagship gestures to UK savers and investors as Chancellor, eventually launching against a backdrop of anti-climax a year later in April 2017.
As the tax year end approaches, the financial services industry readies itself for a flurry of activity. That's in large part because, with just a couple of months to go, the so-called 'ISA season' is upon us.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.