How much do we estimate the Fund will pay out?
The loans outstanding and backed by the Provision Fund amount to £212,577,647
Based on our analysis and experience, we estimate claims of £3,485,804. See historical performance.
Therefore the Provision Fund "Coverage Ratio" is:
Where does the money come from?
The money in the Provision Fund comes from fees paid by borrowers as part of their loan. Every
borrower pays a fee - called the "credit rate fee" - which is determined by a number of factors, such
as their credit rating from independent credit reference agencies.
RateSetter takes a cautious approach to approving who can borrow through RateSetter and aims
to ensure enough money is put into the Provision Fund to comfortably cover estimated claims (figure above).
To read about our stress testing scenarios to ensure there is always enough money in the Provision Fund, click here to open the interactive brochure.
Who does the Provision Fund belong to?
The Provision Fund belongs to our savers and the money is held in trust for our savers. The money is
legally segregated and is therefore completely separate from RateSetter’s business assets.
How quickly am I covered?
If one of your borrowers is late paying or defaults on a loan then a claim is made to the Provision Fund immediately by RateSetter on your behalf. The system works in real-time with the aim that there is no delay in repayments to your account.
Is the Provision Fund covered by the FSCS?
Saving at RateSetter is not covered by the Financial Services Compensation Scheme (which covers
savings accounts up to a limit of £85,000). While this would provide peace of mind the FSCS
comes at cost to the saver, reflected in lower rates of typical savings accounts. To continue to offer
competitive rates of return it is important we focus on building a stronger Provision Fund.
Does the Provision Fund diversify my risks?
Yes, it does. Because all of your savings are automatically protected by the Provision Fund your risk is really diversified by the strength of the Provision Fund as opposed to the individual borrowers that you are matched with.
Typically, RateSetter savers end up with multiple loans anyway but the key point is that the Provision Fund has the effect of diversifying your risk across the entire loan book.
Want to learn more about how the Provision Fund works, view the interactive brochure here.
The Principles of the Provision Fund
The Provision Fund is a trust on behalf of the Lenders, held by RateSetter. This means, like all customer funds, it is ring-fenced from RateSetter’s day to day operations. The Provision Fund has a set of Principles which determines how it is treated.
Principles of the Provision Fund
This sets out the principles behind the management of the Provision Fund.
- The Provision Fund is managed by RateSetter in the interest of all of RateSetter’s Lenders.
- RateSetter’s single overriding principle is that the Provision Fund is managed with the intention that all Lenders receive all capital and interest repayments due to them.
- In the case of a late payment or a default, the Provision Fund has a Standard Management process:
In the unlikely event of a significant run of claims that threatens the capitalisation of the Provision Fund, the Fund will transfer to Active Management.
In this situation, RateSetter will provide Active Management of the Provision Fund with three principles governing the consideration of claims submitted to the Fund:
- a. A claim is automatically submitted by RateSetter to the Provision Fund.
- b. The Provision Fund will consider the claim and, in accordance with the second principle, recompense the Lender.
- c. In the case of a default, all monies recovered by the Debt Recovery process (after costs) will be transferred back to the Provision Fund.
- a. To provide the most equitable management of the Fund in the interests of all
- b. That payment of affected Lenders’ capital will take precedence over payment of
- c. That the Provision Fund will not return to Standard Management until all
defaulted Lenders have received their capital.