There’s been huge coverage this week for the UK Government’s new Pensioner Bonds.
These tie up your money for either one or three years. Those who lend their money to the Government for one year will be rewarded with a return of 2.8 per cent interest while those who salt it away for three years will be rewarded with an “industry-beating” four per cent.
These deals are so far ahead of the negligible returns offered by High Street banks that the Government (through its NS&I National Savings and Investments offshoot) has had to limit its offer of the bonds to only £10 billion and make them available to pensioners only.
The bonds have been created because many pensioners who saved throughout their working lives thought they could be confident that they would be able to live off the interest on these savings.
However the UK’s financial landscape has changed in recent years and banks now offer such a paltry rate of interest to savers that most can no longer be guaranteed of the chance to live off the interest on their life savings.
That’s why Chancellor George Osborne and NS&I were forced to come up with a solution for these lifelong savers – the new Pensioner Bonds.
We were told by Osborne the results of the first day of their availability were “the biggest opening sales of any retail financial product in Britain’s modern history”, when more than 110,000 pensioners responded to gushingly positive promotion in the mainstream media and scrambled to get their guaranteed bond.
I’m not a pensioner (yet!) so of what interest is this to me? Well it reminded me of a savings product I bought into seven years ago which offers a similar rate of return but doesn’t force investors to tie up their cash for years.
At the time of its lauch in 2007, peer to peer lending was seen as untested, unproven and far too risky for serious investors to trust their cash.
Today, however, after testing the water for more than seven years, I now feel confident enough to say that I can recommend its security and returns wholeheartedly.
For me it started back in the summer of 2007 when I saw an onine BBC News report on this new financial player. Then, as now, the main player was Zopa (which stands for Zone Of Potential Agreement; the area where borrowers and lenders can find a mutually beneficial financial arrangement).
This offers a regulated framework where funds from savers (investors) are matched with borrowers who have satisfied a series of stringent financial background checks.
By cutting out the banking sector, which has traditionally matched these funds and blossomed by giving savers a lower return while charging higher rates of interest from borrowers, both benefitted from the new arrangement.
Yes, it all sounded too good to be true, but I couldn’t find any obvious flaw so I thought I’d test the water and was thrilled with the results.
To be continued in a future post in which I will give exact financial details of my experience with peer to peer lending:
In the meantime, you can create your own account at Zopa here.