This generation's financial revolution
By James Tall | Tue 21 Oct 14
By James Tall | Tue 21 Oct 14
It's no secret that savers have had a rather rough ride recently.
New research from SavingsChampion has now highlighted that hard-pressed savers require interest rates to rise fourfold, to 2%, in order for their incomes to reach 2012 levels.
Some will this year receive more than £2,000 less interest for each £50,000 invested than they did two years ago.This is because the banks have made severe reductions in returns, despite the base rate remaining static.
This additional squeeze on savers increases the pressure for action from the Bank of England, which earlier this month again voted to hold the base rate at 0.5%.
A low interest rate environment has certainly made life hard for Britain's savers.
But what if there was another way? A way that allows you to take control and not just rely on the established order? A way that gives you a chance to have your say on the price of money.
Challenging the norm
The cost of money is first of all set by central banks. Those actually involved at the Bank of England comprise just a small group of individuals. It is just nine people - the members of the Monetary Policy Committee (MPC) - who meet once a month to thrash out what we should pay for our money.
Wouldn't it be better, you may ask, if the rate was set by a wider group of people? A group encompassing more diversity of mindset and experience?
This happens - but only to a point. In addition to the official interest rates set by the central bank, the private banks create their own market to set the rate at which money changes hands in the commercial world - and the rate at which people save.
This is set by taking a daily sample of around 20 banks - a method that was responsible for the infamous Libor rate. It is also the method by which savers are losing money every day.
It is a wider market, yes. However it is a closed one, out of bounds for the British public.
The rise of peer-to-peer (P2P) lending has ushered in an exciting new era. Leveraging the internet, with its vast reach and break-neck innovation, the industry has introduced a new rate. A rate set by normal people - the British public lending and borrowing from each other at rates they agree in a transparent online market place.
This rate is open to all. Pioneering savers have taken control and been freed from having to simply accept the rates handed down to them, and more people are now joining them. In fact, the UK P2P market has now passed £2bn in cumulative lending.
Everyday savers have been empowered to form their own market. No teaser rates, no zombie accounts, and no bank rate fixing - just a fair market rate.
This is an attractive proposition, especially when you consider that Which? earlier this year highlighted that savers are losing a staggering £4.3bn a year through zombie accounts, closed to new customers and paying below the rate of inflation.
Unburdened by cumbersome legacy systems, P2P lending is proving to be an efficient means of matching the supply and demand of money, and delivering both sides a much better deal.
The central banks will always set the official rate, and banks will continue to set their own rates.
But importantly there is now a much-needed third rate for you to consider - a more equitable rate; a rate driven by the crowd that you can influence.
It is this market rate that is redefining modern finance. Allowing people to bypass the banks, and the status quo, to secure a brighter financial future.
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