Peer-to-peer lending may offer better return – but can be risky

ANYONE desperate to earn more from their savings may be tempted by peer-to-peer lenders. This is the practice of lending money to individuals or businesses through an online matching service.

Rates typically offered are 4 per cent a year. But although tempting, it is important to be aware of the risks – and while the industry is regulated by the Financial Conduct Authority, it is not covered by the Financial Services Compensation Scheme, under which people can get back up to £85,000 of any losses if a company goes bust.

There is also no guarantee that investors will get the target interest rate advertised and they could also face a big delay getting their money back. Peer-to peerlender Ratesetter has experienced a spike in saver withdrawals since the pandemic and it is not able to process requests as quickly as usual. It can mean delays of more than a week compared to the usual one day.

Sarah Coles, of Hargreaves Lansdown, warns: ‘Peer-to-peer lenders state a target return. This may make people think they are like savings – but, in fact, they are very different.

‘They are risky investments and there is no guarantee you’ll receive your target rate, and you could lose money.’