The Anonymous Widower

Managing Zopa As A High-Interest, Almost Instant-Access Deposit Account

The media is full of articles and comment moaning about the derisory rates that you can get on any savings. There is also the related moan, that if you sign up for some higher-interest account, your money is locked away for several years.

So what does the average man on the Dalston omnibus want from a savings product?

1. A Very Low Chance Of Losing Their Money

You’ve worked hard for the money and you don’t want to lose it. One of my friends, a very sensible Irish doctor, put all his savings in an account with an Icelandic Bank. That broke one of the golden rules of saving by which I live – Never trust your money to anybody domiciled outside of where you live. Would I bank with Santander? Of course not!

2. The Best Possible Rate Of Return

Certainly better than you’d get from a reputable bank or building society.

Note the Rule of 72, which says that if you divide the interest rate you’re getting into 72, that gives you the years to double your money. So if you’re getting five percent, that will mean it doubles in 15 years. But two percent takes 36 years.

3. Instant Access Would Be Nice

Obviously, it would be nice to be able to remove your savings from the account without suffering any penalty or charges.

4. The Minimum Possible Level of Management And Paperwork

We all want to put our money, in a place with the convenience of the Bank Of Mattress.

 ———–

So does a product exist that gives us all we need?

It is my view, that a peer-to-peer lending platform, and Zopa in particular, can be used as a high-interest instance-access deposit account.

In this discussion, I’m using Zopa as it is the peer-to-peer lender I know best. But the analysis could probably apply to your own favourite.

Zopa also has the following features.

1. Your Investment Is Probably Safe

I say probably, as occasionally, one of my loans has gone into default, but now Zopa  safeguards your money. Here’s what they say on the website.

Earn great returns on your savings with peace of mind. The Safeguard is a fund designed to step in and give you back all your money, plus interest, in the rare event a borrower cannot repay. Find out more about the Safeguard fund.

But even so, my losses on older loans before Safeguard have been about four percent of the total interest I have earned on my investment.

2. Automatic Reinvestment

If you should so choose, you can re-invest any money that is credited to your account because of interest earned or loans repaid.

I don’t use this feature, unless I’m going away for a few days and probably won’t be checking my Zopa account.

I normally re-invest any money returned manually, as I  might need to invest it in something else!

But the automatic reinvestment can be easily switched in and out.

3. You Are In Control

If you want to add more money to your Zopa pot, it is just a simple transfer.

If you want to remove some of the repayments or interest, it is just a simple transfer out and this has got faster recently.

The only restriction, is that transfers must be from and to a UK bank account.

4. You Are Not Part Of The Loan Management Process

On the other hand, you are not part of the loan management process and so you don’t get involved with any tedious paperwork or micro-management. As I have thousands of loans in Zopa, it’s a process I want no part of it.

As a software man of a certain experience, I would prefer to trust well-written software rather than my own judgement.

5. One Percent Fees To Savers

Click here to see what Zopa says about fees to savers.

———-

My use of Zopa is to have a sizeable part of my assets there, balancing it with less risky assets like shares in BP or HSBC. I add money to Zopa, as and when I have spare funds available.  Usually, this is around the 12th of each month, as that is after all of my monthly bills have been paid.

Recently, I have needed extra funds for work on my house, so I’ve withdrawn money from Zopa at times, instead of re-investing it.

So to return to using Zopa as a high-interest instance-access deposit account.

1, Earnings From Zopa

I find that I’m earning about five percent before tax on money invested in Zopa.

But what is interesting is that for every £50,000 I have invested in Zopa, repayments, interests and capital repaid come to about £2,500 each month. This figure might be lower for someone investing now, as a lot of my loans are to sensible individuals for five years and weere made a couple of years ago.

2. Balancing Zopa With Your Bank Account

So this money can either be reinvested or if you need some extra funds repatriated to your bank account.

One thing that helps is that a large proportion of clients repay their loans on or about the first of the month. So a large amount of money is received in the first week or so of the month!

By careful budgeting and transferring money between Zopa and your bank account, you can maximise the amount of money, that is earning you more money in Zopa and keep your bank account in what you consider to be the black.

3. Matching Your Agreed Overdraft Limit To Zopa Monthly Cash Flow

I should say that my agreed overdraft limit on my current account, is sensibly matched with the amount of money, I could normally be able to repatriate from Zopa in a month.

This means that in a month with heavy expenditure, I don’t drop myself in it.

4. Flexibility

If say one month, your horse has just come in and you’ve won several thousand in the 4:15 at Kempton, you can leave the money to accumulate.

And if in another, your car needs repair, you can take out everything you can.

5. You Can Cash It All In

I often wonder what would have happened, when my wife got cancer, if we hadn’t had any money or two sons who could drop everything and help. It would have been difficult in the extreme.

But a Zopa fund could have been liquidated without penalty and used as income in the last months or years of my wife’s life.

You can sell on good loans, but I’d have just not bothered to reinvest any money and transferred it all out of Zopa.

6. You Can Start In A Small Way

Most investments require a large sum to get started, but you can flirt with Zopa to see if it for you for as little as ten pounds.

7. Transfers To And From Zopa Are Going To Get Faster

This is something that is happening and will improve all our lives in the future.

But it particularly helps with an investment like Zopa, where you’re effectively using it as a quick-access deposit account.

———-

It wouldn’t be fair not to state the disadvantages.

1. You Can Earn More With Other Peer-to-Peer Sites

There are always other better ways of earning higher returns, but then they usually come with a higher risk profile.

2. It All Sounds Too Good To Be True

I am not a Financial Advisor, but a Control Engineer and a Mathematician. On the other hand, I’m investing my own money! And I’m also prepared to show my analyses to anybody who wants to see them!

———

It’s your money, so do the research and make your choice.

After all we all know the old joke about the best way to  make a small fortune! Give a large one to a financial advisor!

September 18, 2014 - Posted by | Finance | , ,

6 Comments »

  1. The most important thing when investing to to spread risk across a number of different types of investments and across different risk levels. It is also important to decide the timeframe for an investment. High risk investments will earn more, but are much more volatile. If money invested might be needed at short notice, then a low risk set of investments is better to avoid having to sell at a bad time. All eggs in one basket is extremely dangerous no matter how safe that basket might appear at the time. Hence your friend’s problem with Iceland, Others I know with large large property investments in Ireland before the crash suffered badly, and if there is a significant change in interest rates or property prices fall, there will be many more that wish they had spread their risk. If we could predict investment returns accurately, then we would all make money, but returns would be lower.

    Comment by John Wright | September 18, 2014 | Reply

  2. […] And to me the great thing about Zopa is that it is not just a high-interest account, but one with fast planned access, where you can start saving with as little as a tenner. I talked about how to use an account to your advantage here. […]

    Pingback by Why Bother With Traditional Savings Accounts? « The Anonymous Widower | September 21, 2014 | Reply

  3. Hi, firstly than you for your blog which I find fascinating. I am using Zopa in a similar way (though sadly I have less money to put in!). I have around £50k in at the moment, which is similar to your example above and why your figures have raised a question. So, I have 50k invested for five years at 5%. I would expect therefore to earn £2500 in interest each year and have about £10k of capital repaid making a total for each year of around £12500 ( I’m assuming that each borrower’s repayment is the same each month throughout the loan period with a higher proportion of each repayment being interest at the start and a higher proportion being capital at the end)
    Yet in your example, you describe each £50k returning around £2500 each month. At this rate, your money would be repaid in 2 years, despite you dating it’s on a five year basis…. Am I missing something?
    Regards
    John

    Comment by John Broadbent | September 22, 2014 | Reply

    • I actually dropped the figure deliberately, as I didn’t want to proposse pie-in-the sky.

      Comment by AnonW | September 23, 2014 | Reply

  4. Sorry for the typos – I’m on a tablet and it’s late!

    Comment by John Broadbent | September 22, 2014 | Reply

  5. […] wrote Managing Zopa As A High-Interest, Almost Instant-Access Deposit Account over three years ago, and a lot of what I said then still […]

    Pingback by Why A Zopa Investment Is Like A Salary! « The Anonymous Widower | October 2, 2017 | Reply


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