If you have a stack of cash sitting in your bank account, or even just a fistful, you may be a little miffed at the paltry interest rates offered by your bank.
This is where Zopa steps in. This peer to peer loan website has been around since 2005. Sounds longer than I thought, but I read it on the internet so it must be true.
What is Peer to Peer Lending?
So, peer to peer, what’s so special about it? In a nutshell, people with spare cash loan it out, other people borrow the money and pay it back over a period of years.
Better Rates And No Banks Involved
It’s all done through the rather straightforward website and the rates are better all around. Banks, bless their (Egyptian) cotton socks, are left out in the cold.
Micro Loans To Minimise Risk
To minimise risk, any money you invest is automatically divvied up and loaned in small chunks across a range of borrowers.
Three Plans to Choose From “Access”, “Classic” and “Plus”
There are 3 plans to choose from, each with a different rate of return. Access gives 3.5%, Classic 4.5% and Plus 6.5%.
The Access and Classic plans also benefit from a safeguard fund which covers any issues relating to non-payment so that your interest rate is maintained. The higher rate plan “Plus” doesn’t include the safeguard.
Each of the plans invests your funds over a time-frame of 5 years. Access allows you to get at your cash anytime you like. The other two plans charge a 1% fee if you decide you want any invested money before the end of the five years..
Your Loan Repayments Trickle in Throughout The Month
Loan repayments trickle back to you every month. You can set them to be automatically re-invested in any of the plans. Or you can set them to accrue in your holding area, from there you can withdraw them whenever you like, without penalty.
Peer to Peer Lending Alternatives
There’s a few other peer to peer lenders. Well actually there’s lots, but the well known ones are Lending Club and Funding Circle. Zopa is the most highly regarded and they have a good history, having lent over £1.6 Billion.
More than 150,000 people have borrowed money using Zopa and there are currently more than 53,000 active lenders.
How to Invest With Zopa – A Step by Step Guide
If you want to open an account with Zopa, but you’re feeling a bit overawed i’ve put together this guide to help.
Here’s a link to the website. If you use the link below and invest over £2000 we both get a £50 bonus. Then just follow the steps below which will guide you through the process.
1.Goto the “Become an investor” link in the top right of the home page www.zopa.com
2.Click “Find out more” a little way down the page on the right hand side.
3.Click the “Sign up to get started” button
4.Complete the resulting form, adding your email, some security answers and a few other things. Then Click “Create Account”.
5.Once you’ve completed the sign up process and clicked “Create Account”, an identity check will be carried out. If everything is above board you’ll receive a verification email and be able to logon to Zopa.
How To Invest Once Your Account Is Activated
Once your account is activated (it may take a day or so) you will be able to upload funds and decide the rate at which they are loaned out.
1.Click the “Manage” menu option. Then note a) the account number b) the sort code and c) the Unique reference number. Be sure to use your own unique number, this is what identifies your account!
2.On the manage page you can also select how to lend money out. In this screenshot you can see I have Classic and Access setup.
3. You can also select where your monthly repayments end up. You can choose to loan the funds out again or to direct them to your holding account. They’ll sit there until you either a) make a withdrawal b) decide to loan them out again.
4. At the bottom of the Manage screen is the “Choose a new product”. If you click this you will be directed to the screen below. Here you can choose to add each of the three products to your account.Overall, the Zopa website is pretty intuitive and straightforward. Setting up where your funds go is nice and easy. Everything is well laid out and with the concise set of options available there’s little opportunity to confuse matters.
The three lending options have slightly different risks and availability associated with them. The returns aren’t stratospheric and they tend to vary by 0.1 – 0.2% from month to month.
The Access and Classic options have the benefit of the the safeguard so you can rest easy.
If you have a sizeable portion of cash sitting in your bank it might be worth putting some of it here. For an overview of my experience of investing £100 stay tuned for my upcoming post…
Zopa is going to hold part of my emergency fund. If you haven’t got an emergency fund, also known as an F U fund, then you probably should. It’s basically your buffer cash for when the shit hits the fan. So that, instead of having to pimp yourself out, or sell your car, you just dip into your emergency fund until you can get back on your feet.
Six months worth of living expenses is my target emergency fund. So with two months in my back up bank account, 2 months buried in a tin and two months in Zopa, I think i’ve got the right balance…
Ha, I don’t actually have 2 months worth of cash buried in a tin… Yet.