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Funding Circle
I've been investing in Funding Circle for five or six months now. It's a peer to peer lending system.
I like it for several reasons.
Firstly, I'm getting an average interest rate of 6% and that will increase slightly over time (the minimum lending rate has increased over the time I've been with them, and reinvesting interest pushes up the overall rate).
Secondly (and very important for me) it's very ethical system. All the money is invested in British businesses, so I'm investing money in my own country which means it's benefiting the people around me. But more than that, I can choose exactly which companies I invest in. I have small investments in everything from organic farms to companies producing improved paint for exterior walls. I never invest in anything involving cars or aircraft (bad carbon footprint) and I can be as selective as I like. I chose not to invest in a firewood company this morning as their blurb said nothing about planting new woodland, just about buying up stuff they can fell, but I chose to invest in a firm making children's play materials.
Thirdly, I can invest small sums. I typically invest £20 - £60 (usually £20) in each business. ( £20 is the minimum investment.) Therefore, I can invest small sums when I have them, but I'm not tied to any regular schedule or amount.
Fourthly, it has play value. It you don't have much free time, you can use the autobid facility which will invest across a spread of businesses at the rate you request (but you lose the ethical advantages of choosing where you invest). If you have a bit more time, you can treat it a bit like a computer game. It works very much like ebay in reverse. Investors bid the interest rate they will lend at, and when the auction ends, the lowest bidders get accepted. (But as the business needs lots of those £20 bids, they may end up accepting 1300 bids at 6.2%, 231 bids at 6.3%, 20 bids at 6.4%, etc.) If you like sitting around near the deadline, you can often slip in a high value bid and get it accepted.
Fifthly, the borrowers are mainly small businesses who have difficultly getting bank loans at sensible rates.
Sixth, you can choose your risk level. Funding Circle assign each business a risk level which is essentially their estimate of how likely the loan is to default. Higher risk loans attract higher rates of interest. (their estimate of risk seems reasonably accurate. I've had a few defaulters, but no more than feels right statistically) I'm currently beating the odds by about 2%, but then most of my loans are still in the early stages. (They pursue defaulters, so you don't get involved in any legal hassle)
Seventh, capital is repaid as the loan progresses along with interest. I like this as it means I get back a steady trickle of money which I can either withdraw or reinvest. (you don't have to wait until the end to get all your capital back)
(You can 'withdraw' money by selling your loan parts to other investors, but you may have to take a small loss if you want to sell them quickly)
NB. (pasted fro Wikipedia) The peer-to-peer industry adheres to standards set by the Financial Conduct Authority. Peer-to-peer depositors do not qualify for protection from the Financial Services Compensation Scheme (FSCS), which provides security up to £85,000 per bank, for each saver[12] but the Peer-to-Peer Finance Association mandates the member companies to implement arrangements to ensure the servicing of the loans even if the broker company goes bankrupt.
If anyone would like to try Funding Circle, they've got an offer whereby I can send you an invitation. If you invest a minimum of £1000 in your first month, we both get £40.
I like it for several reasons.
Firstly, I'm getting an average interest rate of 6% and that will increase slightly over time (the minimum lending rate has increased over the time I've been with them, and reinvesting interest pushes up the overall rate).
Secondly (and very important for me) it's very ethical system. All the money is invested in British businesses, so I'm investing money in my own country which means it's benefiting the people around me. But more than that, I can choose exactly which companies I invest in. I have small investments in everything from organic farms to companies producing improved paint for exterior walls. I never invest in anything involving cars or aircraft (bad carbon footprint) and I can be as selective as I like. I chose not to invest in a firewood company this morning as their blurb said nothing about planting new woodland, just about buying up stuff they can fell, but I chose to invest in a firm making children's play materials.
Thirdly, I can invest small sums. I typically invest £20 - £60 (usually £20) in each business. ( £20 is the minimum investment.) Therefore, I can invest small sums when I have them, but I'm not tied to any regular schedule or amount.
Fourthly, it has play value. It you don't have much free time, you can use the autobid facility which will invest across a spread of businesses at the rate you request (but you lose the ethical advantages of choosing where you invest). If you have a bit more time, you can treat it a bit like a computer game. It works very much like ebay in reverse. Investors bid the interest rate they will lend at, and when the auction ends, the lowest bidders get accepted. (But as the business needs lots of those £20 bids, they may end up accepting 1300 bids at 6.2%, 231 bids at 6.3%, 20 bids at 6.4%, etc.) If you like sitting around near the deadline, you can often slip in a high value bid and get it accepted.
Fifthly, the borrowers are mainly small businesses who have difficultly getting bank loans at sensible rates.
Sixth, you can choose your risk level. Funding Circle assign each business a risk level which is essentially their estimate of how likely the loan is to default. Higher risk loans attract higher rates of interest. (their estimate of risk seems reasonably accurate. I've had a few defaulters, but no more than feels right statistically) I'm currently beating the odds by about 2%, but then most of my loans are still in the early stages. (They pursue defaulters, so you don't get involved in any legal hassle)
Seventh, capital is repaid as the loan progresses along with interest. I like this as it means I get back a steady trickle of money which I can either withdraw or reinvest. (you don't have to wait until the end to get all your capital back)
(You can 'withdraw' money by selling your loan parts to other investors, but you may have to take a small loss if you want to sell them quickly)
NB. (pasted fro Wikipedia) The peer-to-peer industry adheres to standards set by the Financial Conduct Authority. Peer-to-peer depositors do not qualify for protection from the Financial Services Compensation Scheme (FSCS), which provides security up to £85,000 per bank, for each saver[12] but the Peer-to-Peer Finance Association mandates the member companies to implement arrangements to ensure the servicing of the loans even if the broker company goes bankrupt.
If anyone would like to try Funding Circle, they've got an offer whereby I can send you an invitation. If you invest a minimum of £1000 in your first month, we both get £40.
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There's a blurb here explaining the general principles of how Funding Circle works https://www.fundingcircle.com/how-it-works
If you'd like an invitation after reading around, let me know.
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It really is being able to pin my investments exactly to my ethical principles that is the biggest benefit, though the fact that I can combine that with a better rate of return than a bank account is also a big plus.