Rolling P2P Streams

Relying on P2P income streams alone is unlikely to make you rich unless you have a big lump sum of cash to begin with. But it's a nice additional way to make extra money with no real work. Consider it a 'background task' to leave running while you focus on other things. You can just set up the accounts and leave them to build, and slowly create lots of little 'pots' of growing investments. For those of you who get bored easily, it makes things a bit more interesting.

I've been using P2P sites such as Ratesetter, Lend Invest and Funding Circle for several years now (note: some of these platforms may be temporarily refusing new accounts during the coronavirus epidemic, so be patient). There are far more platforms out there compared to when I first started, so it's worth hunting around for the best offers.

Bear in mind that the less established platforms may be a bit riskier than those with a proven track record. And not all of them have a security fund to back up investments if (like we saw recently) the economy takes a hit. So do a bit of research before you hand over your money. I only link to platforms that myself and my family have personally used for a while.

How it works

Here is a badly drawn diagram highlighting the basic process...

To begin with, you save up a lump sum to invest. Obviously, the bigger the starting lump sum, the more interest you will earn, and the faster the process will be. But I began with just £1000.

Pick a platform to invest on. I chose Ratesetter when I first started out. Mainly because it was one of the only P2P platforms out there.

Now for the hardest bit: wait for the interest to build up on that £1000 investment. This can take a while. Trust me when I say you will get bored waiting for it to build up and will start chipping in an extra £10 to £50 a month here and there. In the meantime, go away and work on one of your other less passive income streams.

Once you finally have a decent amount of interest (£500, as an example), take out the initial £1000 plus whatever extra you've added over time and open another P2P account elsewhere. Leave the £500 in the Ratesetter account to continue accumulating interest and repeat the process ad infinitum with different platforms until you have multiple passive P2P income streams.

If you've ever played the game Cookie Clicker, that highlights the process fairly well! You'll end up with a field of growing asset shoots that will slowly grow into trees.

Asset Review - Ratesetter

I don’t like risk. I don’t get any kick out of casinos, high risk betting, short term stock market investments or even putting a tenner on my friend’s ability to drunkenly run up a wall without face-planting the concrete on a night out. I try to take the same low risk approach with other areas of my life. With bank interest rates currently dragging along the floor and inflation gliding around 1.6% as of today (no, I don’t believe it’s that low either), simply keeping your savings stashed in a regular account or under the mattress is guaranteed to lose you money. That’s an incredibly high level of risk. Far too much risk for my liking! So I try to hunt around for safer places to deposit my earnings.

Ratesetter is one of the peer to peer lending platforms that I’ve used over the last few years and one that I would still recommend today due to its lower than average level of risk. It was brought to life in October 2010 and for a few years I carefully watched my family and friends using it to make a regular income before deciding to take the plunge with my own cash. It has a very basic set up (great for newbie investors like me) with options to auto-lend either capital or capital plus earned interest, options for a 5 or 1 year bond (currently offering 3.5% and 5%) or the ability to lend on a rolling basis. Interest starts to accrue as soon as your money is matched to a loan and the capital and interest is paid out when you sell/withdraw funds.

For the very lazy, Ratesetter does offer the ability to automatically lend your money at whatever average rate the market is accepting at the time. However, I personally prefer to check the 1 and 5 year bond rates each week and set my accepted rolling interest rate somewhere in the middle of these two figures. The automatic rolling rates tend to be quite a bit lower than the bonds (around 2.5% currently), so it’s worth checking and adjusting your own rate on a regular basis (although be aware that if you set your rate too high then it will take longer to get a borrower).

I’ve only used the rolling market option, as I like to have the ability to grab my money and run at short notice if need be. So my review is based entirely on that experience. I know a couple of people who use the 5 and 1 year bonds, but the interest rates on these tend to fluctuate a lot and I don’t want to miss out on added interest. There are also exit fees on the longer term bonds of up to 2.5%, which the rolling market option doesn’t have. Bear in mind, there is still a fee of £1.50 if you use a debit card to invest less than £1000 in a rolling account. You can invest a minimum of £10, but I tend to always keep £1000 in my account (mainly because I’m too cheap to pay the £1.50).

Ratesetter has a nice provision fund that can cover any bad debts by 116% if need be, although default rates are pretty low due to Ratesetter’s underwriting team being fussy about which borrowers they accept. Default rates were 2.78% for 2015 and 0.98% for 2016, which is far short of the 116% covered. But the provision fund is nice to have just in case. With the rolling account, I’ve also had loans repaid early by the borrower fairly frequently and I’ve had the ability to exit loans early if I needed to. I like knowing that I have this option as an extra safety net.

While there is always some amount of risk in any investment, I’d argue Ratesetter is one of the safest options I’ve found so far. It does require a few minutes of work each week if you want to get the best rates, but it is worth the effort in my opinion.


To open your own Ratesetter account:

Sign up for Ratesetter and receive a £100 bonus when you invest £1000 or more for 365 days!

Disclaimer: The above bonus applies to new lenders only. If you sign up through the above link, I receive a small referral fee at no expense to you which means I can continue this blog without having to use annoying advert pop ups!