Peer-to-peer lending unpopular with over eight in 10 savers
With interest rates on savings accounts remaining at a historic low, peer-to-peer lending has been hailed as another way to boost investments. However, savers clearly still need some convincing – the majority (84%) would not consider investing their money with a peer-to-peer lender, according to new research from uSwitch.com, the independent price comparison and switching service.
Although official figures show the UK’s peer-to-peer lending sector increased by 121% during 2013, only 2% of savers are currently using a peer-to-peer lending platform. Six in 10 consumers (59%) are reluctant to use a peer-to-peer lender because the industry is not covered by the financial services compensation scheme, while four in 10 (39%) say that it is because it is not regulated by the FCA. A further half (49%) are sceptical about using peer-to-peer lenders simply because they don’t know enough about them, and another fifth (22%) are weary about using a firm they haven’t heard of.
Some may argue that the introduction of regulation on the peer-to-peer lending market from April will boost consumers’ interest in the platforms, but barriers still exist. A quarter (25%) don’t want to lend money if they don’t know where it’s going, and one in ten (9%) don’t want to use an online platform.
Meanwhile, poor cash ISA rates have clearly taken their toll on consumers’ savings with one in four (25%) expecting to earn no more than £50 in interest on their savings. As a result, consumers are looking elsewhere to stash their savings with over four in 10 (43%) using their current account. Worryingly, a further one in 10 (10%) think keeping their money in a piggy bank at home is the best option when in fact this means their money is being eroded by inflation. Almost six in 10 (57%) have opted for an instant access savings account, while a third (34%) have gone for fixed term savings accounts of between 1 and 5 years.
Jafar Hassan, personal finance expert at uSwitch.com, said: “While the take up of peer-to-peer lending has been low so far, regulation should provide additional peace of mind. But to encourage more widespread adoption, peer-to-peer lenders need to convince consumers that their money is safe, and they can’t simply rely on regulation to do this. The fact is that many consumers are still skeptical about lending money if they don’t know where it’s going; others simply don’t want to use an online platform.
“People fed up with poor ISA rates but nervous about peer-to-peer lending should consider keeping their money in a high interest current account. Nationwide’s Flex account offers rates of up to 5% while Santander offers up to 3%.
“But this doesn’t mean consumers shouldn’t write cash ISAs off – with normal savings products and current accounts, basic rate taxpayers hand over 20% of the interest to the taxman. And rates may still improve – last year, we saw a flurry of fixed-rate cash ISAs hit the market in the run up to the new tax year from providers such as NatWest, so everything is still to play for.”
For more information visit www.uSwitch.com or call 0800 093 0607
