FEES are easily forgotten amid the excitement of a new investment. But over time, commission costs, service charges, transaction fees, currency conversions and servicing costs can quickly add up.
According to new research from Netwealth, 50 per cent of investors do not know how much they are paying in fees, even though 72 per cent said that fee transparency was the most important factor when investing their money. In most cases, these investors will only find out what they are being charged by their investment platform when they receive their monthly, quarterly or annual statements.
However, P2P lending is not like other investments. This is a sector which grew out of a desire to take back control from the banks and offer a more streamlined and transparent version of lending and borrowing.
While P2P investors are not immune from fees, each of the ‘big three’ platforms promise their lenders that there are no hidden charges when they place their money with them.
So we decided to take a look at the fee structures at the ‘big three’ – Zopa, Funding Circle and RateSetter – to see how they all stack up.
Zopa offers two main products for lenders: Zopa Core and Zopa Plus. The Core account currently pays four per cent in annualised earnings, while Zopa Plus pays 4.6 per cent.
Both of these accounts follow the same fee structure. They are free to open, IFISA-eligible and accept any investments above the value of £1,000.
In practical terms, a one-year investment in Zopa’s Core account would be subject to £0 in fees, and should net interest payments of £40.
There are no fees for Zopa lenders – you can simply place your money on the platform and start investing. Borrowers are charged a loan serving fee which the borrower pays. This cost is not passed on to the lenders.
However, it is worth noting that Zopa charges a flat rate of one per cent on any loans which are sold on by the investor before the loan term is up. There may also be a ‘market adjustment fee’ if the interest rates have gone down since the loans were purchased.
Adjustment fees aside, the cost of selling £1,000 in loans on the Zopa marketplace would be £10.
Read more: Zopa looks to raise £50m ahead of IPO
Funding Circle’s investors can choose from two IFISA-ready accounts: the Balanced account, which currently pays 7.2 per cent per year; and the Conservative account, which currently pays 4.8 per cent.
The platform charges an annual ‘servicing’ fee of one per cent to all investors. However, this fee is already factored into the projected returns, so lenders aren’t faced with an unexpected bill at the end of the year.
As an example, a £1,000 investment in Funding Circle’s Conservative account would cost £10 per year but should net £48 in interest payments.
Like Zopa, Funding Circle does not charge any fees to open an account. But unlike its rivals, there are no fees involved in making a withdrawal or selling a loan on the secondary marketplace.
Read more: A guide to liquid IFISAs
There are three investment options for RateSetter investors: Rolling (which pays 2.8 per cent at present); One-Year (which pays 3.8 per cent); and Five-Year (which pays five per cent per annum).
Each of these accounts can be opened free of charge, with a minimum deposit of just £10 and no fees. Rolling account-holders can withdraw their money at any time without incurring any fees, but investors in the one-year account must pay 0.3 per cent to exit early, and five-year investors are charged 1.5 per cent for early access.
On a £1,000 one-year investment, lenders would incur £0 in fees, and approximately £38 in interest. The cost of exiting this investment early would be £3.
RateSetter’s borrowers are charged an administration and credit rate fee, which will vary depending on the size of the loan, the creditworthiness of the applicant, and the loan term. However, these borrower fees are not passed on to the lenders.