Savings rates on the rise but P2P lenders still offer seven times more
Banks and building societies are finally passing on interest rate rises to savers but they still have a long way to catch up with peer-to-peer lenders.
Research by Peer2Peer Finance News shows savers willing to take more risk could earn up to seven times more through P2P lending.
The Bank of England has increased interest rates from 0.25 per cent at the start of the year to 1 per cent earlier this month.
This figure influences the price of borrowing and banks have slowly started to offer savers more attractive rates on their products to reflect the increases.
Read more: Base rate rise will see banks “clobber” borrowers
Moneyfacts data shows average fixed rates have seen their biggest monthly rises in more than a decade during May.
The average one-year fixed bond, longer-term fixed bond, and longer-term fixed ISA stand at their highest levels since 2019.
The comparison website’s research shows the average easy access savings rate has increased from 0.16 per cent to 0.39 per cent over the past year.
The typical easy access ISA rate has risen from 0.22 per cent to 0.45 per cent over the same period.
Savers can now get a rate of 1.68 per cent on a long-term fixed rate bond, up from 0.66 per cent a year ago.
The average rate on a long-term fixed rate ISA has also increased from 0.58 per cent in May 2021 to 1.49 per cent this month.
Read more: P2P borrower rates will not yet change despite new BoE rate rise
That may be good news for savers, but rates still remain behind both the target rates and returns after bad debts on offer from P2P lenders.
Unlike a savings account, P2P lending platforms don’t offer Financial Services Compensation Scheme protection but users are rewarded for taking higher risks with higher rates compared with leaving their money in a low-paying savings account.
For example, 4th Way data shows P2P investors can earn 12.69 per cent after bad debts with CapitalStackers or 11.18 per cent with Estateguru.
Interest can also be earned tax-free using an Innovative Finance ISA (IFISA)
For example, LandlordInvest’s loans could earn 10.71 per cent after bad debts through an IFISA or between seven and 8.5 per cent with platforms including ArchOver, CapitalRise, CrowdProperty and Relendex.
Using this data, a saver putting £1,000 into a fixed rate bond paying 1.68 per cent would earn just £16.80 in the first year.
In contrast, that same £1,000 with CapitalStackers could earn £126.90.
That is a £110 reward for taking a bit of risk with your money, if you can afford to and are willing to do so.
Read more: Mortgage approvals and consumer borrowing in decline