Best Interest return on Savings! Low risk and a High rates with a Zopa Account

As of writing this, unfortunately there isn't any high interest account left. I remember getting 12% on my savings 'back in the day', but now you are lucky if you can climb as high as four percent. This is what inspired my hunt for a new way to make money grow. This hunt took a long time, as I was looking for something that was extremely low risk, but also with high returns ... not easy to come across. Yet, eventually I found what I was looking for.

What I found is a risk factor of less than 0.5- 4% on average (depending on your preferences), but that offers a return of 5-11% on your savings. Read on if you would like to know more.

Peer to peer lending is not a new concept. It has actually been around quite a while and has won many awards for providing excellent returns for low (or no) risks. The concept is that people need to borrow money and savers need to earn money on their investments. This is usually how banks make a lot of money, so this system just steps in to replace the banks. Now, don't worry, the risk is managed so that it is pretty much verging on impossible for you to lose your money. There are two ways this works:

1) Reserve pot, lower returns.

This option is where the company guarantees your return, by using the buffer between the lending and borrowing interest rates to build up a large pool of funds, This pool is then used to repay the lender in the event that a borrower doesn't repay their loan. This style of account also normally means that your lending is only over a few large loans.

2) Spread risks, but higher returns outweighing expected loses.

This technique offers higher returns, as often the company will only take 1% for themselves. This means that if you lend to a Class C borrower at 11-12%, you may actually get a return of 10-11%. To reduce the risks, your loans are spread across hundreds (or thousands) of people and you can choose to only lend each person 10 GBP. This means that even if you do get a bad loan, you are only likely to lose less than 10 GBP (as they will have repaid some of the loan). This is calculated and predicted for you as an average of bad debt, so that you can clearly see the figures and possible returns before setting up a lending plan. For example, lending to borrowers in Class C, the company may advise you that:

Lending Rate = 11-12% | Fee = 1% | Predicted Bad Debt 4% |

Expected Return after Fees and possible Bad Debt = 6-7%

Although that return isn't extremely high, if you don't get any bad loans, you could get a return of 11-12%. You can also ask the system to roll your repayments and interest into new loans. Meaning that your interest earns interest ... increasing your return further and helping to grow your returns. Either way, this is far higher than my savings account!

For myself, I have gone with option 2, as the risk is very low and the rewards can be much higher. There are dedicated companies in the US and UK that are fully legal and well setup. If a person misses a payment, they chase them on your behalf. If the default, they send debt collectors and proceed with legal action ... at no cost to yourself. Hence, the risks are very low, but the rewards are quite good.

The best company in the UK that I managed to find was ZOPA. They have won many awards for their excellent service and returns (just see their website). If you decide to join or take a look, please consider using my ZOPA LINK. It won't cost you anything and I may not even get anything, as they only hand out bonuses when someone invests a lot. However, I would not recommend that you do that initially. I would prefer that you try them out first with say 500-1000 GBP (or smaller if you wish). Then you can see the results for yourself without investing much. If you are happy with the results, then you can decide to invest more later. This is what I have done and now I will continue to invest money when and where I can, as my results are well beyond those of savings accounts. I'm sure the person who referred me will get a little bonus soon, but at the rate my savings are increasing, I am quite happy for them to have their treat. Of course, once you join and try the experience, you can also decide to refer friends too ... after all, it is hard to find a decent return on your savings right now!

I hope that you have found this useful, please leave a comment if you have, or if you want to ask any questions I will try to answer them to the best of my knowledge. Thanks for reading.

© Copyright 2011. Brett.Tesol - Full terms available on Brett.Tesol's profile page (click the blue link for profile, failure to read the Copyright Contract could be expensive. The act of copying this work means that you accept the full terms of the contract, regardless of whether or not you have read it).