Raisin: Even Europe's highest savings rates don't match P2P returns
At home in Germany, Raisin (a play on 'raising rates') is known as WeltSparen ('world savings'). The Berlin-based business has already brokered deposits from 35,000 savers worth over €1 billion (£807 million) in Germany and Austria. It is now expanding its savings-search service to embrace 30 European states.
What does Raisin do for savers?
Raisin uses the power of the internet to let European savers shop around more easily for higher savings rates, regardless of their home country. Deposit rates wary widely from one bank to the next, but these variations are even more pronounced from country to country.
Raisin enables savers to sign up for and deposit cash for fixed terms across a range of different European banks, all via one login and a single user interface. Europe-wide deposit protection covers 100% of the first €100,000 of cash on deposit per person per EU savings institution. (In the UK, the government-backed Financial Services Compensation Scheme (FSCS) safety-net protects 100% of the first £75,000 of cash on deposit per person per UK institution.)
Raisin takes away all the paperwork needed for foreign anti-money laundering and proof-of-identity regulations by allowing its local banking partner to vouch for you on the Continent. In other words, there's now no need for you to apply or file the paperwork in person in order to open a European savings account.
In effect, Raisin allows savers to use a single portal to apply, open and manage multiple deposit accounts across Europe, while tracking down the highest EU-wide savings rates. In theory, such Europe-wide competition for savers' cash should lead to improved competition and higher rates for savers throughout the single market.
European savings rates are pretty awful
Now for the bad news: European savings rates are largely awful, with very few European deposit accounts able to match UK savings rates.
If you thought UK savings rates were low, then check out the following table. This shows the average savings rates in November 2015 for new deposits for a term of up to one year, across 28 European states and the euro-zone as a whole:
| Country | Average Yearly Savings Rate |
|---|---|
| Croatia | 2.0% |
| Netherlands | 1.8% |
| Slovakia | 1.8% |
| Poland | 1.8% |
| Romania | 1.6% |
| Cyprus | 1.5% |
| France | 1.4% |
| UK | 1.2% |
| Italy | 1.1% |
| Bulgaria | 1.1% |
| Greece | 1.0% |
| Ireland | 1.0% |
| Czech Republic | 1.0% |
| Hungary | 1.0% |
| Finland | 0.9% |
| Malta | 0.8% |
| Euro-zone average | 0.7% |
| Portugal | 0.6% |
| Denmark | 0.6% |
| Luxembourg | 0.5% |
| Austria | 0.4% |
| Spain | 0.4% |
| Belgium | 0.3% |
| Germany | 0.3% |
| Slovenia | 0.3% |
| Estonia | 0.2% |
| Sweden | 0.2% |
| Latvia | 0.1% |
| Lithuania | 0.1% |
Source: European Central Bank
As you can see, the average UK savings rate last November was 1.2%. This was higher than typical rates on offer in 21 other European countries. Only rates in seven countries -- Croatia, the Netherlands, Slovakia, Poland, Romania, Cyprus and France -- were higher, ranging from 1.4% in France to 2% in Croatia.
What's more, this search of Raisin's best rates (conducted on Friday, 8 April) found only 14 offers for a deposit of €10,000 (£8,082), with the best rate being 2.2% a year for 10 years with Czech bank J&T Banka.
Given that UK fixed rates can approach 3% a year for five-year savings bonds, these EU-wide deals will likely be of no interest to UK savers.
P2P lending returns easily beat savings rates
While Raisin's aims are praiseworthy, its service cannot escape the fact that UK and European savings rates are limping along at or near all-time lows.
One alternative option for income-starved savers to consider is to swap their savings for investments by becoming peer-to-peer lenders. By lending their spare cash to businesses (via secured or unsecured loans) or to individuals (via unsecured loans), P2P investors can make returns that are typically between 4% and 8% a year (before tax, fees and loan losses).
At Assetz Capital, we offer only secured business loans from carefully vetted British businesses. Currently, our lender returns range from 3.75% a year for our Quick Access Account (QAA) to 7% a year for our Great British Business Account (GBBA) and Green Energy Income Account (GEIA) and from 6.5% to 18% a year* for our Manual Loan Investment Account (MLIA).
Of course, as P2P lending is investing and not saving, investors' money is at risk (see the 'Risk Warning' below), so they may get back less from P2P lending than they invested. Also, peer-to-peer lending is not covered by the Financial Services Compensation Scheme (FSCS; the government-backed safety-net that protects 100% of the first £75,000 of cash on deposit per person per UK institution).
Nevertheless, many P2P providers offer accounts protected by inbuilt safety-nets, known as loss-provision funds. These backstops -- typically funded by additional borrower interest and fees -- aim to absorb predicted loan losses and reduce lenders' losses. At Assetz Capital, all accounts except our MLIA are backed by discretionary, ring-fenced provision funds which should help to lessen bad debts and loan losses.
In addition, P2P lenders can spread and reduce their risk by diversifying, such as lending to a wide variety of diverse borrowers, by lending across a range of interest rates, and by lending over different time periods.
Furthermore, P2P newcomers and novices aren't forced to pick and choose their own loans. Instead, they can invest in P2P accounts that spread risk by 'auto-lending' or 'auto-picking' loans to multiple borrowers based on criteria chosen by the lender. At Assetz Capital, we have three such auto-diversifying accounts: our Quick Access Account (QAA), our Great British Business Account (GBBA) and our Green Energy Income Account (GEIA).
Summing up the problems facing savers these days, Stuart Law, co-founder and CEO of Assetz Capital, says, "European savers have €10 trillion (over £8 trillion) on deposit, with most of this gathering dust in low-rate savings accounts. By risking some of these savings via peer-to-peer lending, these income-starved savers could seriously improve the returns their spare cash makes. What's more, thanks to the Innovative Finance ISA (IF ISA) newly launched on 6 April, these returns can now be tax-free for UK P2P investors!"
RISK WARNING: "As with most forms of investment, peer-to-peer lending carries a degree of risk to your capital; in this case, if borrowers were unable to repay their loans. At Assetz Capital, we seek to reduce this risk to our investors by taking asset security on every loan, with the added benefit of a discretionary Provision Fund for some of our investment accounts."
* These are the rates which were actually available to lenders via the Assetz Capital web site when this blog was written on 08/04/2016
- April 8, 2016