Payday Loans Get A Cap and a Kicking
This morning the Financial Conduct Authority has imposed a cap on payday lenders. The BBC report starts like this.
Payday loan rates will be capped at 0.8% of the amount borrowed a day,said the Financial Conduct Authority (FCA).
In total, no one will have to pay back more than twice what they borrowed, and there will be a £15 cap on default charges.
I do hope that this type of loan quickly becomes a blip on the history of finance.
If you might at some time need to borrow money, make sure that you can get the best credit rating you can, by behaving responsibly. This should help to give you access to finance at a reasonable rate when you need it.
But we can all help to get rid of these high cost loans.
I believe that if we put our savings in a peer-to-peer lender that lends to others, this will put more money in the hands of responsible lenders, who can lend to those that need to borrow, who fit their lending requirements.
So you’ll be helping yourself and also helping others.
But do choose a peer-to-peer lender that is or will be regulated under the FCA.
Zopa, who are regulated, say this about their relationship with the FCA
Peer-To-Peer Lending For The Non-Digital World
I was an early adopter of peer-to-peer lending in 2008 and now have a six figure sum invested, which returns me over five percent before tax.
Reading the letters about poor broad band and mobile phone coverage in today’s Sunday Times, it strikes me that many people are cut off from this sensible investment.
I could if I wanted to, set up my Zopa account, so that I perhaps looked at it once every blue moon.
Would it be an idea if one of the peer-to-peer lenders offered a minimal input product for those disconnected from the digital world?
Money would be paid in by a direct transfer or even a cheque paid in at a bank branch, if you still use one.
If you needed to check your account or perhaps withdraw a small amount of the interest and repayments that you have received as cash, you would just use a debit card in any ATM.
Obviously, you will still have the option to login normally, if you wanted.
Now Barclays Tidy Up Savings Accounts
It’s reported in The Sunday Times, but also here in The Guardian.
In my view it says to me, you don’t trust of the wunch of bankers.
All I use my bank for is to hold my working money and provide debit and credit cards.
What Would I Do With £70,000?
A spam e-mail turned up in my Inbox asking me what I would do with a lump sum of £70,000.
I would have no hesitation and I would stick it into a peer-to-peer lender, that had a mechanism that protected my lump sum and gave me interest. Without doing the research, I think that is either Zopa or Ratesetter, at present. But there may be others with an equally safe risk profile.
Zopa, the one I know best, has given me the following.
1. A safe haven for my money, until I want to do something else.
2. 5.1% interest before tax.
3. The ability to either roll-up or take-out the repayments and interest.
4. You might also get invited to the occasional party to meet the team. You might meet mavericks like me there too!
Dont’t put your lump sum near any wunch of bankers. The Bank of Mattress is probably a safer investment.
Miliband Forgets The Deficit
I suppose strictly speaking, it’s not his deficit, as it was stared by Blair/Brown, but I see Miliband’s omission of the deficit in his conference speech rather worrying.
I certainly wouldn’t vote for any politician, who omits to tell the full picture.
Miliband is certainly second-rate even compared to Gordon Brown, as he has shown in the last few weeks over the \scottish Referendum.
Why Bother With Traditional Savings Accounts?
The Sunday Times today, has an article entitled Savers Face Clampdown On Access To Top-Rating Accounts. Here’s the first two paragraphs.
Savers are struggling to access the best-paying accounts as banks and building societies impose restrictions, such as limiting customers to certain postcodes, and slash the deposits that can be held.
A report for The Sunday Times by the consumer group Savings Champion shows the amount that can be saved in the best buy accounts has shrunk significantly in two years. In 2012, you could save up to £1m in the top two best-paying easy access accounts and up to £9m in the third-ranked. Today, the top three easy access deals allow up to £3,000 or £6,000.
And there’s a lot more in the same vein.
For nearly eight years now, I’ve not used a traditional savings account. I have over a hundred thousand of my hard-earned money in an account with Zopa and in that time, I’ve earned over five percent.
The banks can only get savers to invest in their rip-off products, as they know there are several hundred mugs born every minute.
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.
You don’t have to live in a specific postcode, or have millions to play with and so long as you’re over eighteen and fund your Zopa account from a UK bank account, you’re in the club.
I should also say that with Zopa, I will also include other reputable peer-to-peer lenders. But I’m entitled to have my preference.
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.
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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.
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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.
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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!
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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!
Would You Use Crowdfunding To Invest In A Celebrity’s Business?
Yesterday, I picked up a copy of City AM and this headline of Exclusive: Jon Moulton hits out at Sir Stelios for crowd funding exploitation caught my eye.
The article is here on the City AM website and this is the first paragraph.
Celebrity business leaders may be using crowd funding websites to exploit retail investors, the outspoken private equity guru Jon Moulton claims today.
Moulton singles out easyJet founder Sir Stelios Haji-Ioannou as one example of a name using his position to foist over-priced shares on to small investors in his new easyProperty estate agency.
I have used crowdfunding to invest in ideas, but usually it’s to some worthy cause or idea, that is struggling, not an unworthy celebrity. People like Branson, Sugar, Cowell, Haji-Ioannou and others are only looking for a way of creating ideas that mainly enrich themselves! And they don’t need the money!
So the presence of a celebrity inevitably turns me off!
Perhaps two I named, should get together and form a company called easyVirgin. I wonder what it could do?
The best ideas to invest in are ones that are invisible to the general public.
London Takes The Great Leap Forward
From today on all public transport in London, you can use your UK contactless payment card as a ticket. Full details are on the BBC’s web site. Certain mobile phones can also be used.
Some are predicting it’ll all end in tears, but I suspect passengers will take one of two routes; carry on as now with Oyster or a Freedom Pass, or embrace the new technology with enthusiasm and a correct level of mistrust. After all, there doesn’t seem to have been any reports of problems since London’s buses went cashless a few months ago.
As a Freedom Pass user, it won’t effect me directly. But I always carry an Oyster card for the cable car, visitors or emergencies. But there may come a time, when I can leave this out of my wallet.
London is setting a standard here and surely, this should be implemented all over the UK as soon as possible. But I can’t help feeling that some authorities will invent their own totally incompatible systems.
After all, the best way to hack off a visitor to the UK, who perhaps wants to visit people and places in several areas, is to present them in every place with a different ticketing system.
The Stability Of Zopa’s Rates
Since Zopa brought in their safeguarding of lenders, the rates they’ve been offering for money lent over five years appears to have been pretty stable.
Average monthly rates are as follows.
Month Rate
Sep-2014 5.20
Aug-2014 5.20
Jul-2014 5.19
Jun-2014 5.11
May-2014 5.19
Apr-2014 5.00
Except for some days in June 2014, a rate of 5.2% guaranteed has been offered.
The Anonymous Widower 