Following the Covid-19 outbreak and the current economic environment, RateSetter announced on 4 May a temporary reduction in interest for the remainder of the year. During this time, investors will receive only 50% of their interest with the other 50% going to the Provision Fund, for the protection of all investors.  Also, since the outbreak, the time it is taking investors to release their investments is currently longer than normal. Further information is available here. 

Introducing our new investment products: Q&A

About our new products

The new products combine the key features that you are used to with some improvements:

  • releasing your investment should be easier;
  • your investments should perform more predictably; and
  • managing your investments will be simpler and easier.

We believe the new products will cement RateSetter’s position as the peer-to-peer platform with the most consistent returns and the most liquid investment.

The key advantages are:

  • Liquidity: all investments in the new products will draw from a single, deep pool which increases liquidity (access to your money).
  • Stability: the performance of your investment will be more consistent with a stable Going Rate as well as automatic reinvestments which means your money should always be earning, provided it is matched to loan contracts.
  • Hassle-free: we’re taking the complexity out of peer-to-peer investing. With automatic reinvestments you won’t need to worry about managing irregular repayments and redemptions. Simply choose your product and interest rate, we’ll take care of the rest.

Interest rates and investing

Stable interest rates mean consistent returns. Investors choose RateSetter because of its track record of stability. We want to build on that so customers can be even more confident of what their investment will achieve.

Stable rates also allow RateSetter to plan with greater confidence when pricing loans for borrowers. This means we can compete for the highest quality borrowers which, in turn, helps RateSetter to manage credit risk and make the investment even more stable.

RateSetter determines the Going Rate based on the supply and demand within the RateSetter marketplace, the external rate environment and the borrowers RateSetter is seeking to attract.  Our ambition is that the rates available on RateSetter are always attractive compared to the rates offered by traditional savings.

We will let you know of any changes to the Going Rate with 14 days’ advance notice. Changes in the Going Rate will not affect your existing investments which will continue at the same rate as before; changes in the Going Rate will only apply to new investments/reinvestments.

Yes, you can choose your own rate for investments and reinvestments in a range of up to 5 percentage points higher than the Going Rate. The way to set your own rate is unchanged.

Most investors are matched to many loan contracts, each of different amounts and dates. This means you may receive irregular repayments from borrowers.

We are making our product much simpler to manage. Simply choose your product and interest rate, we’ll take care of the rest and keep your money earning.

Reinvesting in the same product avoids your money moving unexpectedly if the borrower chooses to repay early. It makes everything simpler and ensures that you know exactly what to expect when you invest.

This ensures that rates are not set unrealistically high, resulting in money not earning interest for long periods of time. It will help to keep rates from becoming uneconomic for RateSetter.

Yes, Auto Invest is a popular way to invest and it can still be used with the new products.

Access to invested money

Releasing investments will work in the same way as now. The fee to release investments in Access is set to zero. The fee in Plus is 30 days of interest charged at the Going Rate; and in Max it’s 90 days of interest charged at the Going Rate. This reflects the higher earning potential in Plus and Max products.

Example: The fee to release £100 invested in Plus with the Going Rate at 4% would be £0.33. This is calculated as follows: (Sum being released x Going Rate) x (30 days/365 days in a year). The calculation using the numbers from this example is: (£100 x 4%) x (30/365) = £0.33.

As the fee is linked to the Going Rate, it may go up or down over time. When you look to release the investments, the fee will be determined by the Going Rate at that time.

We will let you know of any changes to the Going Rate with 14 days advance notice.

As always, access to your money is subject to liquidity. By founding our new products on a single market, all investments will draw from a single, deep pool which increases liquidity (access to invested money).

We are moving to a calculation that enables the fee to take into account the Going Rate at the time. We think it’s helpful so that your interest and charges have a relationship to each other.

The fee to release £100 from Plus at the current Going Rate of 4% would be £0.33, which compares to £0.30 to release £100 from the 1 Year market. The fee to release £100 from Max at the current Going Rate of 5% would be £1.23, which compares to £1.50 in the 5 Year market. (Note that any changes in the Going Rate would change the Release Fees for Plus and Max).

The repayments that you receive from borrowers will be automatically reinvested so you will need to release your investment in order to withdraw.

There is no option to take repayments directly to your Holding account. This makes liquidity consistent for all investors.

The Fair Usage policy creates an investment pause after a withdrawal. This will apply to investments in the Access product.

Risk and rewards of investing

When investing, people consider two key things - capital risk and liquidity risk.

The capital risk of investing with RateSetter is unchanged. By founding our new products on a single market, all investments in those products will draw from a single, deep pool and this will increase the liquidity of your investment. This reduces the risk that you will need to wait when you request to release your investment.

No. It has always been the case that the level of investment risk at RateSetter is the same regardless of which product an investor chooses. This is because RateSetter’s Provision Fund spreads every investor’s risk creating a collective investment effect across the entire loan portfolio.

The higher Going Rate for Plus and Max reflects that investments in these products will be committed for a longer period of time because of the fee to access investments.

Existing investments

The 1 and 5 Year markets will continue exactly as they are.

If you have an active investment or order in any market you will be able to continue investing in that market as normal. The 1 and 5 Year markets will be withdrawn for new investors and existing investors that don’t use them.

The Rolling market will be re-named ‘Access’ and its settings will be updated on 3 October. The main change is that the Market Rate will become the Going Rate and will be set at 3%.

Existing investors will have the added option of investing and directing reinvestments into Access, Plus and Max products when they launch on 3 October.

 

In the event that you had chosen to direct reinvestments to the 1 and 5 Year markets but you no longer have access to those markets, your repayments will be directed to your holding account so you can choose where to invest from there.

There is no change to these markets so rates will continue to respond to changes in supply and demand as now.

Other

Since we launched nearly ten years ago, we have evolved our products – a natural consequence of being pioneers and our desire to offer the best possible peer-to-peer investment product. These new products are the culmination of this evolution. 

We believe good products are easy to use with a consistent experience so that everyone understands what they are getting, and this is what we set out to do.

RateSetter was recently recognised for innovation by winning the Queen’s Award for Enterprise, becoming the only peer-to-peer lender to win this prestigious business award.  

No, we started work on the new products some time before the FCA made its announcement but, as you would expect, we have ensured that they are compatible with the new regulations.

RateSetter can’t manage investments for its customers nor can we advise you about which investment product to choose. However, we are very happy to discuss the features of our products and answer any questions about how they work.