FSCS: robust protection or a flawed guarantee?

By Ceri Williams

In response to a recent piece in Citywirewe highlight why RateSetter is proud not to be covered by the FSCS.

A guarantee, but at what cost?

The FSCS is the default option used, and cited, by unthinking institutions who simply don't care about giving their savers a decent return.

The FSCS mark was raised from £50,000 to £85,000 as a result of banking failures during the financial crisis. But what it gives to savers in terms of confidence, it takes away in terms of return.

RateSetter is a platform, not a bank. So we are thankfully not restricted by FSCS and are free to develop a bespoke system that we believe is in the best interests of our savers.

A better alternative for income-hungry savers

The savings market has changed dramatically over the last 5 years - the majority of institutions have failed to evolve with the times.

This has actually left the UK saver losing money in below inflation accounts as a result in large part to the costs associated with the FSCS being passed on to them. They may be protected from a potential disaster, but they are not protected from disastrously low rates.

The intelligent saver is frustrated and is finding new products that deliver returns that far outweigh those offered by institutions having to pay into the FSCS.

RateSetter offers rates that beat the traditional lenders due to not being burdened by that cost, and the company does this with a minimal risk profile.

This minimal risk profile is highlighted by the risk score of 1, similar to cash accounts, that has been attributed to RateSetter's products by top research agency FE. RateSetter is the first P2P platform worldwide to be risk-rated in this way.

As we continue our growth, at a time when UK P2P lending has exceeded the £1bn mark, it is more important than ever that our savers have essential volatility information when investing.

The view from FE

Mika-John Southworth, Marketing Director, FE, explains:

"At FE we understand that taking necessary, calculated risks is part of everyday life, which is why we have launched FE Risk Scores. Investors need to be sure that they are making a truly informed decision based on the facts, and FE Risk Scores provide a single, easy to understand measurement of the relative riskiness of individual investments or even an entire portfolio. RateSetter's low risk score should act as reassurance to anyone who is looking for an alternative to a cash style investment fund."

So how do we aim to protect savers against potential risks?

We have created our own protection system - the Provision Fund- designed for intelligent savers who see that bigger returns are worth the minimal risks involved.

Every borrower pays a contribution dependent on their risk profile into the RateSetter Provision Fund, which gives the saver confidence that their investment will be repaid in the case of borrower default.

Not one of our savers has ever lost a penny since we launched in 2010. They have, however, made substantial returns. Shielded by the Provision Fund, with its 230% (and growing) coverage ratio, many have confidently increased their holdings in RateSetter far in excess of the limited £85,000 guaranteed by FSCS-covered alternatives.

The future of the savings market

As the only P2P company worldwide to have a risk rating, and with the benefit of our market-leading Provision Fund, we have become the go-to P2P provider for savers looking for both security and return.

We are rightly proud of our unrivalled record in saver protection, and will continue to grow with the best interests of the consumer at the heart of our business model.

As always, we are very interested to know what our savers think.

Please use the comments section below to share your thoughts on how the RateSetter Provision Fund compares to FSCS.



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