Peer-to-Peer Lending vs. NISAs

Peer-to-Peer Lending vs. NISAs

As of the 1st of July this year, the Chancellor announced that cash and shares ISA’s are to be merged into a new super NISA, offering a limit of £15,000 tax-free savings, all of which can be used for either cash, investments or a mix of both. Therefore ultimately creating a larger investing pot. Great news for the savers out there, right?

Well unfortunately the celebrations have been short lived as the ISA market has been exposed to the harsh financial climate and has already fallen victim to rock bottom rates, much to the disappointment of savers. Therefore the question remains, where are savers to invest their hard earned cash now?

It was also announced in the budget that peer-to-peer lending would qualify for inclusion in the new ISA, meaning that the consumers can invest their £15,000 every year into P2P lending platforms, without having to pay the tax on the gains. Light at the end of the tunnel?

Therefore the battle begins; as it becomes the banks vs. the alternative finance platforms.

An article written for the Independent includes interesting comparison on the returns that you can expect to accumulate from both the banks and P2P lending platforms. The statistics are based on the P2P platform RateSetter. The platform launched in October 2010 with the aim to make peer-to-peer lending simpler and ‘already is becoming one of the fastest growing P2P firms and saw an inflow of £25m in the last month alone’.

The statistics provided by the Independent highlight that ‘1.65 per cent interest on the maximum cash Nisa allowance of £15,000 would give you a net annual return of £247.50 compared with a £420 net from the RateSetter one-year bond option’. Think it becomes evident which method comes out on top.

The P2P lending sector has more than doubled in size over the past few years, with other platforms in the sector such as LendInvest and Zopa reaching lending targets close to £1billion. With more and more P2P platforms entering the market and the FCA introducing regulation, it is now an established vehicle for saving and investing, as well as offering competitive returns that rival the offerings of our high street banks. However, using these platforms do carry risk as they cannot offer a solid guarantee that you will make a return on your investment, but it is a concern that must be weighed up by the individual against the rewards of using P2P and the higher returns that they offer.

However, there is on going speculation; are we now in an era where we are seeing peer-to-peer lending replacing the traditional banking methods?

Read more on the Independent's article here.