Zopa In Hard Times
I have been examining my detailed figures on Zopa, the peer-to-peer lending site I use to hold my deposit account money. You’d think that the real interest, I’d be getting would be lower than it was last year, as reading the papers and you’d think that everybody was going belly-up. But surprisingly in January the real interest, which is actual interest paid out, adjusted for any bad debts, has risen by about a percentage point. And I’m still waiting for the big payments that come at the end of every month, around the 25th!
So why could this be?
I think that it’s partly due to the improved lending policy of the company, in that bad borrowers are less likely to be loaned money and over the last couple of years, the dodgy customers have not got loans. And of course for every dodgy customer who doesn’t get a loan, there is more money to lend out to good ones!
Or it could be that those who have loans out with reputable banks and companies, make sure that whatever they do, they make certain they repay the loan?
I do think though, that this improvement will probably apply to all banks and companies that do personal loans in a professional and traditional manner. So as banks are constantly being criticised for not lending enough money could it be that they’re doing the right thing?
To return to Zopa, I also have noted that I have not picked up a loan using their Rapid Return system for eight months. This system allows good loans to be effectively sold on to other lenders.
It may be that I’ve not been lucky in picking one up, but it could be that people like the Zopa rates and would prefer to live off the interest rather than cash in the loans.
I don’t know, but it does seem to me that Zopa is getting to be a better investment and that the majority of the good British public are not as stupid ass they are made out.
Protests: When’s It Time To Go Home
I haven’t really been thinking much about the protests in the City of London. In truth, I think they are rather pointless, as the power of the City and the bonus culture will be broken in a few years. Or as far as they affect the general public they will.
Just read this article on the BBC web site, which talks about when it’s time to go home.
But why do I feel that the city protests are pointless?
The clearing banks are finished for a start, as new technology and clever web sites will increasingly take over their work. As I say often on this web site, I use Zopa to manage my long term money and get just under 6% before tax. The only other thing I need is a simple on-line banking account to manage my cash and standing orders.
In the next few years other ideas will emerge and many of us will not need a clearing bank any more. As my friend David said many years ago, banking will shed jobs with gay abandon. But the City will create new industries and many will need lots of people like those being laid off by the banks.
An interesting insight was a couple years ago, I found a company organising on-line shopping for the cargo ships that wander the world. It is based near the City because it is close to the skills, customers and companies it needed to setup. These sort of ideas will gravitate to the City if we have the right environment and create jobs and income for London. Why do you think Silicon Roundabout is just north of the City. rather than in Manchester, Leeds or Newcastle?
The Zopa-Go-Round
The title of this post, nods a little towards Rossminster, which was credited with a rather dubious tax avoidance scheme, that was nicknamed the Money-Go-Round, by the press. The two companies Zopa and Rossminster operate in different fields and I suspect they have really nothing in common. But I like the title.
Now, why do I call it the Zopa-Go-Round?
Usually saving accounts fall into two broad categories.
- The account gives you instance access and an obscenely-low interest rate.
- Your money is locked in for a year or maybe longer, but you get a slightly better rate. But getting your money out early is not only extremely difficult, but it comes at the cost of various financial penalties.
Zopa is something different and very much between the two.
As 2011 has just finished, I now know that I earned just under six percent before tax over the year and that includes all bad debts and charges.
Not a bad rate considering that you have no restrictions on withdrawing money, if it is in your account. So if you have just been paid some interest or some capital has been returned, you can transfer it to your bank account without charge, if that is the place you need it. There is also no charge for putting more money in.
So one of the great things about a Zopa account is that it can be used like a higher interest deposit account without the restrictions and you can move you money in and out freely, as it suits you.
If you take my circumstances, it illustrates how a Zopa account can be used.
When I moved here, I was unable to sell my stud in Suffolk, so I am living on my savings in the Zopa account, plus a small drawdown from my pension. So each month, instead of re-investing all of the money that I earn from Zopa in new lending, I retrieve enough to pay my bills and expenses. If I have any surplus at the end of the month in my current account, I transfer this money back into Zopa.
In my case, much of the capital I have put in, is still lent out to borrowers, but is of course paying regular interest. I could if required sell some of these loans on, but as most are up-to-date, I prefer to keep the borrowers I know, rather than new ones I don’t.
So the money goes around and around and sometimes I choose that it comes out my way.
Hence Zopa-Go-Round!
You can think of many people, who might want this form of flexibility.
I don’t think that my situation is untypical, as often there comes a time in one’s life, where you downsize your house or your possessions.
C and I had always intended to sell up and move to London, although we’d never put a date on it. but we had window shopped for a house in Hampstead. Unfortunately, her premature death put an end to all those dreams. A lot of our possessions would probably have been sold and we wouldn’t have really needed to have three good cars and a horse box.
So just like many, on retirement, we would have a few thousand pounds to either spend or save. Hopefully, the sale of the stud, would have bought a desirable house, where we wanted it.
As I have found, Zopa has been an ideal place to put that money and draw it out as and when I need it.
Zopa though, isn’t the best place to put money, that you might need in a few months, unless you are prepared to use their system to sell good loans to other people. So it wouldn’t be the best place to save your money to pay the taxman, unless of course you save more than you need or do very detailed calculations.
One thing to remember is that if say you put £10,000 into Zopa and lend it for three years at an average rate of five percent, you’ll get just over £300 a month back. I’m assuming that you don’t adjust the interest rates you charge to get the best return and that you don’t reinvest the money returned.
Zopa in the Sunday Times
Zopa is featured in an article in the Sunday Times today called “Become a Lender and Earn 15 %”.
Two statements about Zopa stand-out.
Zopa has provided £160m-worth of unsecured loans to consumers since it was launched in 2005 and accounts for more than 2% of such new lending.
If that is true, then they have become a significant player in the personal lending market. I checked with Zopa and they told me that it’s between one and two percent and sometimes up to the higher limit.
And.
Zopa said its default rate is 0.9% against an average 5% to 7% for high street banks.
I would go along with that as my default rate has not been at all high. In fact it’s significantly less than 0.9%.
The Zopa Login
Adnmittedly, I know the people at Zopa well, but is there a financial site, that has such a simple, foolproof and I think secure, login. All you need to remember is your e-mail address and password and know the answers to a set of personal questions, whose answers, most people would know about themselves.
So what would happen if you someone broke my login? They might find out how much I had invested, but they wouldn’t be able to withdraw any money without first setting up a link to their bank account and then authorising the link. Not something that is easily done without leaving a trail of evidence. I suspect too, that alarms would ring at Zopa.
Everybody, who designs a secure login could do no better, than build on the excellent work Zopa has done.
Zopa and a Transaction Tax
One of the great things about Zopa is that the only tax you pay is income tax on any money you earn.
I hope that the EU’s proposed new transaction tax, doesn’t sneak in there somewhere. After all, politicians would love to find a way to tax us more, so how about 0.01% of every transaction going through the banking system? It would be a total loser, as even at a very low amount, the man on the Dalston Omnibus would object strongly to paying a tax on every time he received or paid-out money.
I suspect it won’t happen, but the Euro was badly set up and although it is a very good idea, you can’t really expect all countries to adopt a legal approach, when they see a clever loophole.
But Zopa does mean that you avoid stamp duty on an investment, which like the Stock Market, has a degree of risk.
The Greeks Can’t Spell Tax
Just heard David Bewick of BGC Partners on BBC Radio 5.
He said the above in a rather far-reaching appraisal of the economic state of the world.
He said two other points of note.
- The Greeks have no commerce or manufacturing of note.
- When did you last hear a profits warning, from a company that wasn’t a bank?
It was all very entertaining.
I’ll add some good news of my own. In July, I earned 5.88% before tax on the money I have in Zopa. In August, it was down to 5.40%. So what has been my return for the first 24 days of September? It’s back up to 5.88%! They always say about investments that they can go down as well as up.
Two Pieces from the Zopa Newsletter
The monthly Zopa newsletter is always worth a read. There are some older ones here.
Two pieces from the current August one, I received yesterday are worthy of note.
This is the first.
And fresh off the press today, there is an interesting column in today’s Evening Standard, which states that (and we quote) “maybe a banker-free future will be with us sooner than we think”
I’ve been saying that about banks for a long time. Alternative methods will keep cropping up for their key services. On Tuesday, I went into Nationwide at Islington to use their cash machine and comfy chairs and the place had all the excitement of a morgue.
The second piece is about the people who work for Zopa.
Last but not least, we are very excited in the office as we launch NEED:LESS, our new fundraiser, and we’d love you to join us on our mission! Starting on Friday, 9th September, the Zopa team will be living on just £5 a day, for a week. This will have to cover all food, fun and extras, while the remaining amount that we would normally spend will be donated to DEC in support of the East Africa crisis.
How many of the fat cat bankers would know how to live on five pounds a day? Five pounds a minute perhaps!
Zopa’s New Login
Zopa has changed it’s login screen and as would be expected from a company which is based on innovative software, it has created one of the simplest and secure login systems that I have seen.
You login initially with a standard user name and password. You can check either or both of two boxes.
- Remember the user name on this computer.
- Show the characters I’ve typed into the password.
Many systems like eBay use the first, but few use the second, which is important to me, as my left hand is a bit wayward with the shift key.
They then ask you one of three check questions, such as where you were born. This question has always been case insensitive, which is the way it should be. If it’s not, you then might have to write it down, which of course breaks the security.
I can truthfully say though that I’ve never had any problems with logging in to Zopa. Or any security issues either.
Closing A Zopa Account
Someone likes the idea of a Zopa account, but is worried about, how he could get access to the money in an emergency. I have been researching this and find that although it may not be the best financially in the long term to close a Zopa account, there are ways that will get most of the money out fairly quickly.
Let’s say you have £10,000 invested in Zopa and it is lent out on a three year basis. If you do nothing then over three years the money will be returned with the appropriate interest, subject to any losses from bad debts. There is only one way to assess these and that is by looking at the past performance of your loans and the proportion of bad debts that Zopa discloses. I have always adjusted the interest rate I charge to be not too greedy on the one hand and not too low on the other to get the money lent out quickly. I also make sure, I don’t lend over large sums to any borrower.
Analysing my borrowers, shows that only a small proportion have missed a payment and only five out of over 2300 loans have gone bad. Ask anybody who has run a finance company about that rate and they will say it is very small.
If we look at our notional £10,000 it will earn about seven percent a year, which is £2,100 over the three years. I’m assuming here that you reinvest the money in Zopa. Looking at Zopa performance it would appear that about two percent of loans fail. So if we look at the our £10,000 then expect to pour something like two hundred pounds down the drain.
It’s not quite as simple as that and I’ll be putting together an Excel spreadsheet that is properly calculated.
But the point is that you will still get 98% of the original money back, plus a bit of interest.
But supposing you want the money quicker. Only a small proportion of my loans are not available for Rapid Return, which is Zopa’s get out quickly method. This will cash out most of the money in a couple of months.
But I wouldn’t do that!
The notional £10,000 will give you a cash flow of about three hundred pounds or so for the three years, but if reinvested in Zopa it could be longer. This may in fact be what you want to do.
The trouble is if you have cash-in-hand you always want to spend it.
The Anonymous Widower 