Ratesetter is a British peer-to-peer lending platform that provides loans to households and businesses. Since launching in Autumn 2010 it has lent over £1.7bn and expanded to the Australian market in late 2014. Ratesetter is a ‘hands-off’ platform, you don’t need to select from individual loan-parts. You choose an investment product and rate of return that you would be happy to lend at then wait for the lending market to match your offer. Choose a rate that is too high and your money will be sat there without earning interest. Choose a rate that is too low and miss out on higher returns.

Article first written: 8th August 2016, fully updated 17th February 2017.

Key Facts:

Expected Returns: 2.9% (rolling market), 3.9% (1 year market),  5.5% (5 year market)
Provision Fund: Yes
Sell Out: Yes, fees depend on investment product.
Minimum Investment: None
Speed of Investment: Very fast, within 24 hours.
Innovative Finance ISA (IFISA): Coming soon
Cashback: £50 on £1000 invested for a year via refer a friend.

Ratesetter Review

Ratesetter is one of the biggest P2P lending companies. Going by the Altfi index of loan origination, its P2P market share of 17% puts it in the ‘big-3’ along with Zopa and Funding Circle. Like Funding Circle the UK Government uses it as a vehicle to invest in companies via the ‘British Business Bank’. The latest figures I can find are from December 2015, but at this stage the Government bank had lent £8 million via Ratesetter. It has a provision fund, which means that to date no-one has lost money though investing via the platform. Ratesetter’s trading history, size and proxy-recognition from the government gives it a perceived platform risk lower than its smaller and newer competitors.

Once you deposit money, you select from one of three investment products:

Note that the rates above constantly change based on the market. Once you deposit money and log in, you’re give these options:

On the left hand side marked (1) is where you select between different investment products. Clicking on one of these gives you the option to invest at the lowest possible market lending rate. However, you can find a better rate by clicking to set your own rate, marked as (2) in the screenshot above. Clicking on ‘set your own rate here‘ gives me a breakdown of the current lending offers:

Above, there’s only £9,277 waiting to be lent out at 5.1%, and another £98.4k waiting to be lent out at 5.4%. If you set your rate now at 5.4% you’ll probably have it lent out within hours, and with a bit of luck setting it at 5.5% you will match in a day or two. So just by clicking on the ‘Ratesetter expert’ link and setting it at 5.4% you’d earn an extra £18 on a £1000 investment for 5 years.

You can choose which product you wish to reinvest your interest at. Although you’ll earn slightly less, it’s probably not worth the hassle of manually setting the best rate after every payment. For example taking the scenario above, if you have £2000 invested at 6%, your £10 dividend payment would just earn you 18p more over 5 years if you log in and set it yourself.

You do have access to sell out your investments early. However, on the rolling product is free to get out of, and the way the fee is calculated on longer terms is complex. To try to understand fully it’s worth having a read through this forum thread, but to summarise from the official Ratesetter representative:

All the other products you can access early, through the “sell-out” function. But there is a cost as the loans have to be refinanced as we want to avoid “gamers” taking the higher interest rates knowing they plan to withdraw early. The fee varies depending on the rates you previously attained compared to today’s going rates, as your loans have to be filled. Therefore the actual cost can vary, but if you search “sell-out” on this forum I’d argue the average seems to be around 0.6%, but can vary from near £zero to 3% in some circumstances.

If you read through the thread, you’ll find that counter-intuitively people who have held onto their 5 year product for a longer time report a higher sell-out penalty than those who want to sell out after just a few months.

Ratesetter Welcome Bonus

Ratesetter has a really generous £100 welcome bonus on your first £1000 invested. To receive the bonus you need to register through a valid referral link and keep your money invested for a year. You can easily track how long you have left to wait at the bottom of your account summary:

Note that investing in the higher paying 5 year product and then just selling out after a year is not as simple as it sounds. Their early sell out is quite complex to understand, and aims to give you what would would have earned had you invested in the ‘right’ term product. As I understand it, in theory if you invested in the 5 year but sell out after 2 years, they’ll charge you a fee around 2x the difference between the 1 year and 5 year product.

Summary

Ratesetter is a well established and simple platform that still retains some of the excitement in peer-to-peer lending by giving manual control over rates. While better returns can probably be found elsewhere, this comes with higher risks and often manual effort in picking individual investments. One possible ‘hands off’ alternative is the Assetz Capital GBBA account which also has a provision fund and higher returns at 7%. However, while it takes a long time to get fully invested in this 7% product, you can be fully invested in Ratesetter at a reasonable rate within a couple of days. For me the biggest downside to Ratesetter is the penalty for early sell-out of the longer term product. For me, if rates across the board have fallen or stayed the same and someone is prepared to buy my loan-book, why should I have to pay a large penalty? On the other hand, Ratesetter maintain this is to prevent people from gaming the system and treating it as a high-paying easy access account. In effect, this penalty probably keeps the rates of return higher by reducing demand by those with shorter timescales.

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