US P2P Lending for Non-Americans

After China (another story…), the USA is the largest peer to peer lending market. The most successful platforms like Lending Club or Sofi have originated tens of billions of dollars in loans. Yet for an outsider it can be very difficult to begin to understand the US P2P lending market, particularly when you don’t have an insight into how retail savings work or how people think about their personal finances. Thinking about the UK, most retail investors would not think about investing in P2P before considering popular alternatives: ISAs, SIPPs, retail bank savings, BTL property or general stocks and shares brokerage accounts. Within those, they’d consider the tax advantages, allowances and protections like FSCS protection on bank savings. This article is an introduction to the US P2P lending market for outsiders.

US Retail Saving & Investing

Traditional Savings Accounts

Most people have the ability to access a simple savings account, which currently bares little to no interest. The FDIC (Federal Deposit Insurance Corporation) insures all deposits up to $250,000. Most banks in the United States offer around .01% to .05% for a standard interest baring savings account. There are better options for people that have larger sums of money to deposit, but it is only marginally better. A savings account is the safest way to begin saving your money in an FDIC insured account.

Money Market

Another option is a money market savings account. These accounts are still FDIC insured. A money market might offer slightly higher interest rates than a traditional savings account. Like a savings account the funds are still liquid, meaning you can withdraw them at any time. When interest rates are higher these interest rates are more appealing to the retail customer. The downside is a higher minimum requirement for your first deposit ($10,000 for example) and a limit by the Federal Reserve to six transfers or withdrawals a month.

401K’s

These types of savings are designed for retirement. They allow people to put in pre-taxed dollars and invest them how they see fit. The benefit to this is that a large number of employers in the United States match to a certain percent: essentially free money. Similar to the shift from Defined Benefit to Defined Contributions pensions in the UK, the 401k is quickly taking the place of traditional pensions, as it eliminates the employer from having to guarantee a payout at the end of your career. If an emergency arises, you can take a loan out against your 401K.

The negative side to this is the money is stuck in the 401K once it’s in. Of course you can withdraw the money early, but there is a steep penalty for doing so. There are rare instances where you may be able to withdraw a portion of the funds, but you must fit a strict criteria the IRS has. These are great for retirement savings, but not for funds you might need a few months down the road.

IRAs (Individual Retirement Accounts)

There is another saving mechanism called an IRA or Individual Retirement Account. Do not get this confused with a 401K, as they differ in contribution limits as well as investing opportunities. Also, employers offer a 401K plan while an IRA can be opened by any location offering IRA services. Lastly, a difference is a 401K usually has a defined list of what a person may invest their funds in, while an IRA has almost limitless boundaries in terms of investment opportunities.

Assetz Capital GBBA Sell-Out Progress

I requested a sell out of my funds in the Assetz Capital GBBA account around a year ago, on July 23rd 2017. The GBBA account is the ‘Great British Business Account’ which is currently on series 2 offering 6.25% returns with a discretionary provision fund. I wasn’t particularly worried about the account or the returns from my investment, but I wanted to try to invest it myself either on some of their manual loans or on other platforms with a higher risk/return.

There have been some questions around selling out of the GBBA and the utility of the discretionary provision fund on the account. It is great to have a safeguard against defaults, but in practice, if you need access to money in the the short term, what happens? This is my progress selling out around £2400 from my GBBA investment over the last year: Read more “Assetz Capital GBBA Sell-Out Progress” →

Questions to ask when choosing an IF-ISA

It’s getting close to April 5^th: the end of the current UK personal tax year and the last chance to use your £20k ISA allowance. You can split your ISA allowance between more traditional Cash ISAs and Stocks and Shares ISAs and the newer Innovative Finance ISA (IF ISA). However, choosing an IF ISA can be more difficult:

• The IF ISA providers are often much smaller with less information or reviews on the net
• Most providers only let you invest in loans listed on their own platform – it’s not like a stocks and shares ISA where you largely have access to the same investments whether you open it with the likes of Interactive Investor or Hargreaves Lansdown
• The FAQ’s are not always clear and definitely not standardised.

Here are some questions that you should be asking yourself when you are choosing an Innovative Finance ISA provider: Read more “Questions to ask when choosing an IF-ISA” →