Ratesetter Review – My Lender Experiences After 3+ Years

ratesetter review

Ratesetter Review (UK)

** Ratesetter review updated November 13th, 2018**

Read my comprehensive unbiased Ratesetter review highlighting my investing experiences after 3+ years as a lender and see why it remains a favourable choice.

Established in October 2010, I considered Ratesetter to be one of the safer peer to peer lending companies. The investment options are basic and very easy to understand although some of the changes to the Rolling Account are frustrating. Ratesetter does require a watchful eye and some hands-on time to achieve the best return rates. Despite account changes and fluctuating rates, I’ve been able to buy loans in the mid 6% range but this can change hour by hour.

My October 2018 Investment: Unchanged
My current combined annual rate of return: 5.9% (After fees but before taxes)
Est. Annual Returns:Up to 6.4%
Recent Return Rate Trend:
My Risk Rating *:
Early Exit:
Provision Fund:
ISA Available:
Loan Types:Consumer, property, business
Loan Security:Consumer loans unsecured, property, personal guarantees
Lender Fees:Avg. 1.73% exit fee on 3 & 5 yr products
Min Investment:£10
Avg. Lender Portfolio Size:£22,000
Time to Become Invested:Auto-invest is Instant, manual varies on rate you accept
Time Needed Managing:
Lending Agreements With:Borrowers
FCA Regulation:Full
Cashback Offer:
£100 bonus on £1,000+ ISA or regular account investment. (See terms on sign up page.)
Sign Up:Sign Up

* This opinion risk factors in loan types, interest returns, company history, default numbers and my own investing experience. Risk rating explained here.

How Do I Sign Up /  Any Bonuses?

Click here to sign up for Ratesetter(New customers receive £100 cashback on the investment of £1,000 or more into an ISA or regular account. Offer can end anytime. See terms and conditions on the signup page. When you open an account through my website it helps me to continue to operate and offer reviews.)

The Ratesetter Review: What You Need To Know

Thumbs Up
  • Safer peer to peer lending option
  • Established in 2010; longer operating history than most peer to peer companies
  • Return rates can be competitive
  • Funded by companies such as Woodford and Artemis
  • Loans given to creditworthy borrowers
  • Low default rates
  • Provision fund with interest buffer to cover lenders equally
  • ISA available
  • Possible to exit loans early
  • Easy to use
Thumbs Down
  • Fluctuating return rates can be frustrating
  • Need to be hands-on to get best returns
  • Rolling Market starting Fair Usage Rule (14 day reinvestment restriction)
  • Exit fees on 1 & 5 year loans can be high
  • Provision fund is discretionary
  • Early loan repayments can leave large uninvested sums in your account
  • Idle money leads to lower returns
  • Larger lump sums of your money can be invested into single loans
  • Roughly 2/3 of loan book is unsecured loans
  • Ratesetter has some sneaky secondary market practices (see What Are The Fees section)

Even though Ratesetter hasn’t experienced a severe economic downturn, it remains in my Top 5 Peer To Peer Lending Report.

Read more below in my exclusive Ratesetter review.

Equivalent Competitors

Zopa, Lending Works, Growth Street

Ratesetter’s Company Financials
 31st March 201631st March 2015
Revenue£ 18,458,205 £ 12,571,797
Pretax Profit / (Loss)£ (4,889,658)£ 475,656
Net Assets£ 24,112,287£ 28,122,808

Financials taken from Companies House and added for informational purposes.

Ratesetter Review: My experiences so far and thoughts on the recent loan issues..

I have been investing in Ratesetter since early 2015. I have a special love for Ratesetter as it took my peer to peer lending virginity without buying me dinner. Ratesetter was the perfect entry point into peer to peer lending as it provided simplicity, safety (or as safe as you can get in the peer to peer lending world), a provision fund and a possible exit strategy. I continue to invest through Ratesetter but I withdraw idle money and interest payments when the rates aren’t attractive.

Ratesetter announced changes to its Rolling Account (read more in my “Thumbs Downs” section below), and then reversed the decision to disallow lenders to be able to set their own targeted interest rates on reinvestment funds. Lenders were once again able to set their rates beginning September 5th, 2018.

Ratesetter isn’t the perfect peer to peer company. It experienced troubles with three of its borrowers in 2017 and publicly announced it had “intervened over and above the usual course of business”.

After the debacle, Ratesetter offered all lenders’ the opportunity to sell out of their loans at no charge to which I declined. This was actually a smart move for Ratesetter as they can take over the older higher paying interest loans and reissue them to new lenders’ at lower return rates, pocketing the difference.

Many readers have emailed me asking if I was still comfortable lending through Ratesetter. I think Ratesetter became overly complacent and in an effort to grow and place more money into borrowers hands, started lending to companies it shouldn’t. It seems like Ratesetter has learned from its mistakes and policies have been put in place to prevent such issues in the future.

My view is that Ratesetter has been transparent reporting its mistakes and has taken action to rectify this situation. They have ceased wholesale lending in order to have more control over where lenders’ money is placed.

To be honest I fully expect some peer to peer companies to make boneheaded lending moves since alternative finance is such a new sector. It’s possible one bad lending decision could lead to its trading demise. As a lender, you can’t achieve decent investment returns without taking some risk and that’s why it’s so important to spread your money over many different investing companies.

Quick Tip

Ratesetter’s withdrawal option has become difficult to find (purposely?). I had trouble locating it so I thought you might too. Counter-intuitively, the withdraw option is now listed under “payments”. You can locate the option here:

Ratesetter review

What Is A Ratesetter?

Ratesetter is a peer to peer lending company where lenders loan money directly to borrowers via lending terms of either instant access (Rolling rate), one year or up to five years. The Rolling account invests in a mix of one-year and five-year loans.

Most borrowing types are personal, commercial and property loans. Property loans make up a small percentage of loans so it’s important to know most loans are unsecured.

Using the one and five-year products, lenders can either choose the current market return rates (auto investing – not recommended) or set their own return rates (recommended).

Even though you may actually be lending to a few borrowers, diversification is achieved by all lenders sharing in bad debts equally.

How Can I Contact Ratesetter?

Email: contactus@ratesetter.com
UK Tel: 0203 1426226

When Did Ratesetter Launch?

October 2010

Are They Regulated?

Yes, by the Financial Conduct Authority #722768 under full permissions granted October 16th, 2017. Investments made through Ratesetter are not covered under the FSCS (Financial Services Compensation Scheme). FCA regulation is nothing like the FSCS, which covers consumers when they deposit money in banks. The FCA reports to the UK government and has the ability to pursue criminal action against companies which violate its standards and codes of conduct.

Who Can Open An Account?

Any person 18 years or older who has a UK bank account and can pass the verification check.

What’s The Signup Process Like?

Simple. They run the usual i.d. checks.

What’s The Minimum Deposit / Investment?

Debit card deposit: £10 min
Bank transfer deposit: No min
Investment into loans: £10 minimum

How Are Deposits Made?

Via bank transfer

Does Ratesetter Offer An Innovative Finance ISA?

Ratesetter’s IFISA was released late February 2018 and is now available to all lenders.

How Much Interest Are Lenders’ Paid?

Average market rates are as follows:

Rolling: 3.7% with a historical average of 3.1%
1 Year: 4.8% with a historical average of 3.7%
5 Year: 6.4% with a historical average of 5.8%

As of November 2018, I have been achieving five-year lending rates in the mid 6.5% rates. When you lend to the five-year term product, you will receive both capital and interest payments monthly. Using the one and five-year lending products, when you receive your monthly repayment, your money may sit on the open market while it is being re-lent. The time it sits on the market depends on the interest rate you’re willing to accept. You can also choose your target rates on the Rolling Market product.

Unfortunately, there isn’t a simple answer to how much lenders can expect to receive since as there are many variables. Sometimes the return rates make no logical sense. For example in early December 2016, the five-year rate was lower than the now-defunct three-year rate.

If you set your target interest rates too high, you’ll likely have idle money sitting waiting to be lent earning you no interest. Idle money collecting little or no interest can have a detrimental effect on returns. I would estimate that due to idle money time, you will receive 0.10-0.50% less than advertised rates.

Is Interest Paid Immediately Or When the Loan Starts?

Interest accrues as soon as your money is matched to a loan.

When Is Interest Paid?

Rolling: Capital and interest are paid monthly or when you sell out / withdraw.
1 Year: Capital and interest are paid at the end of the term.
5 year: Capital and interest are paid monthly.

Am I Lending To Ratesetter Or The Borrower?

Ratesetter is a true peer to peer lending company so you’re loaning money directly to borrowers. This is good for lenders.

What Are The Fees?

Ratesetter has exit fees that vary depending on what product you are selling, what your interest rates were when you bought the loans, and what the current interest rates are. I’ve found sell out fees to be in the

If you want to estimate the fees, do the following..

Step 1: Click on the Withdraw link inside your account:

Ratesetter Review

Step 2: Click on Sellout at the bottom of the screen:

ratesetter reviewStep 3: Enter desired sellout amounts and fees will be shown:

ratesetter review

You can see from my example that the fees are a 1.49%.

On a positive note, the Rolling market account has no exit fee.

Also note that if you choose to exit one and five-year loans early, there are some sneaky stipulations buried deep within Ratesetter’s Terms & Conditions page (section 9). Ratesetter will offer your loan parts to other lenders if you want to sell out. If a buyer exists and the current interest rate on offer is lower than your achieved rate, Ratesetter keeps the difference in the future accrued interest. If the existing rate is higher than your achieved rate, you are penalized and it comes out of the amount owed to you when sold to another investor.

If you are investing in Ratesetter with a plan on exiting early, depending on the rates, you might consider using the short term Rolling account due to the costly exit fees on the one year and five-year products.

How Much Time Will I Need To Spend Managing My Investments?

I spend approximately 10 minutes per week using Ratesetter. To earn the best rates, you will need to log on and make sure your reinvestment target rate settings are realistic otherwise your money will sit idly in your Holding Account earning you zero interest.

If you want Ratesetter to be a completely hands-off product, you can set your reinvestments to be lent at market rates, but beware as your returns may suffer because Ratesetter will lend your money at the current demand rates which could be low.

How Long Are The Investment Terms?

Rolling (easy access/ no minimum time frame), one year or five years. The Rolling account invests your money across loans ranging from six months to five years. Any loan can be repaid early by the borrower. This has been frequently occurring since interest rates have dropped as borrowers are refinancing their loans or looking elsewhere for lower rates.

What Security Does Ratesetter Lend Against?

Ratesetter lists its borrowers’ types as individuals, business / commercial loans, and property. Although it doesn’t specifically list each loan, Ratesetter states “Commercial loans include unsecured loans to sole traders and small businesses and secured loans to larger businesses.” I presume most loans are unsecured except for property loans, which make up a relatively small part of Ratesetter’s loan book.

What Are The Loan Loss Rates?

Loss rates on Provision Fund covered loans were 1.8% for 2017 and 0.67% for 2018 year-to-date. These loss rates are low but expect them to rise if the economy worsens. You can see current statistics here.

What Are The Main Risks?

Company Failure: This is a risk with every peer to peer lending company. If the business model fails, investors could lose all of their investments though it’s more likely they would lose some of their investment. I consider Ratesetter to be one of the safer peer to peer lending companies but even they have made lending mistakes. Ratesetter’s provision fund, lending criteria and business model funded by investment heavy hitters such as Woodford and Artemis, make company failure is less of a concern.

Economic downturn: Ratesetter has yet to experience a severe downturn in the economy. If a downturn were to occur, Ratesetter might experience higher borrower default rates since most loans are unsecured.

Lowering of underwriting quality: One of Ratesetter’s draws is they lend to high-quality borrowers who they consider low risk. There is always a risk that Ratesetter will lower their underwriting standards to attract new borrowers resulting in higher defaults.

Is There A Provision Fund?

Yes, and Ratesetter lists the balance as over £26+ million, however, £11.5 million is in cash while £15 million is considered expected future funds. That will buy a few packets of Monster Munch! The provision fund supposedly has enough money to cover defaults by 119% but this fund is discretionary, meaning the Directors decide when and if the fund is used. See the latest numbers here.

Ratesetter has made some extensive changes to its terms and conditions in regards to how their Provision Fund operates. Ratesetter is now allowed to manage the Provision Fund’s health and size by reducing costs, using future loan funds and interest or reducing lenders interest returns. These changes are designed to keep the fund replenished in times of financial troubles. Some people were understandably unsettled by these changes but I appreciate Ratesetter’s forward-thinking to protect lenders’ interests. I think these generally good changes will allow Ratesetter to act in times of trouble. For those unhappy with the changes, Ratesetter allowed lenders to exit the with no selling fees.

What Happens If Ratesetter Goes Bust?

Ratesetter has an independent trustee in place to ensure lenders loans are handled correctly and to ensure wind down of the company. Since lenders and borrowers are contracted between each other, borrowers would continue (in theory) to make payments to lenders via the trustee.

Honestly, if Ratesetter failed (or any peer to peer lending company), it would be disastrous for the peer to peer lending sector as a whole. The wind-down process would be extremely complicated and the administrator’s fees would be costly. Let’s hope Ratesetter stays in business.


Safety + Provision Fund

Ratesetter is considered to be one of the safer peer to peer lending companies. Their underwriting team only loans to high-quality borrowers who are in the low risk of default category. The provision fund while not guaranteed, provides an extra layer of safety and is in place to pay lenders in the event of loan defaults or economic downturns.

Ratesetter is a FCA regulated well-funded company with a multi-billion pound loan book and has an operating history dating back to 2010. Many lenders discount the importance of a company being operated correctly and having access to growth funding, but I consider these to be important factors.

Provision Funds have their supporters and opposers. Supporters feel safer while opposers think funds reduce lenders returns rates. I agree with both sides.

Low Default Rates / No Lender Has Lost Money

Loss rates have remained low at a total of 2.34% as of November 2018. Ratesetter reports that no lender has ever lost money through Ratesetter.

Secondary Market

Ratesetter offers a way for you to be able to exit your loans early. You select how much you want to sell and Ratesetter shows you how much your exit value will be minus fees. Fees vary but seem to be in the 1.5% range.

The Rolling market still offers great liquidity and I continue to be able to sell within a few seconds. Being able to liquidate existing loans isn’t guaranteed but I believe liquidating during normal economic markets shouldn’t be a problem.

Deposits, Payments & Withdrawals

Use a debit card for instant deposits. Monthly payments have always been on time and withdrawals can be as fast as the same business day.

The Website

It’s very easy to use and looks great. Here is the Portfolio dashboard:

ratesetter review

(Not my account balance but I like to dream big!)

TIP: Ratesetter makes it tricky to access the page where you can set your own interest rate (purposely?). Here is how you can quickly access this page.

Most pages display the current lending rate box. You can click on the rate term you want to invest in:

Ratesetter Review

You will be taken directly to the investing page where you can set your own rate:

ratesetter 2


Rolling Markets Fair Usage Rule

If you have money invested in the Rolling Market and you make a withdrawal, you won’t be able to invest money in the Rolling Market for 14 days. This change was implemented to prevent people from withdrawing money at lower rates to immediately reinvest at better rates.

My index tracker funds use a similar rule to prevent frequent trading of the tracker which creates price volatility.

While I understand the concept behind this change, I’m not sure how much impact it will have on the stability of rates but it will certainly impact the annoyance level of lenders. This rule also defeats the purpose of the Rolling Access being an easy “accessible” product.

Fluctuating Interest Rates

Other peer to peer lending sites offer fixed interest rates, which makes reinvesting much easier and less time-consuming. Some people like to be hands-on with their investing but if that’s not for you, consider Lending Works.

Many conspiracy theory investors speculate on why Ratesetter’s rates fluctuate so much and how the rates are calculated. No one has a definitive answer as Ratesetter seems to do what it wants to do. Large influxes of lender money can certainly impact rates.

Fluctuating rates can also be caused by investors using the auto lend feature. Auto lend assigns low rates on behalf of these lenders and if there is a large queue of auto-lenders, market rates remain low.

Need To Be Hands-On To Get The Best Returns / Idle Money Leads To Cash Drag

The biggest annoyance of manually investing through Ratesetter is that your unmatched funds can sit idly by earning you zero if you don’t keep a watchful eye on your account; also known as cash drag. You can go for the hands-off auto-invest option, but you’re likely to receive some horribly low return rates since rates fluctuate by the second. Setting target interest rates only take a few mouse clicks:

ratesetter review


ratesetter review

ratesetter review

You do need to log in and make sure your target rates are realistic or you will experience cash drag on your return rates that could reduce your returns by as much as 0.5% per year. When I find rates less than acceptable, I move idle money to other companies such as Lending Works.

Exit Fees

I consider Ratesetter a buy and hold investment. If you plan on exiting, the fees are approximately 1.5%. I recommend Ratesetter as a long-term investment to avoid the exit fees. Remember there are no exit fees on the Rolling Market. If you do want to exit, the best way is to let your loans mature and withdraw your capital and interest payments.

Unsecured Loans

As of May 2018, 71% of Ratesetter’s borrowers are unsecured individual borrowers. Ratesetter only lends to prime borrowers, but if Ratesetter decided to lower their underwriting standards, defaults could easily rise. Would it be better for Ratesetter to offer secured loans? Yes of course but it’s not too much of a worry since lenders are mostly taking smaller consumer type loans similar to Zopa.

The rest of Ratesetter’s loan book is made up of secured business and property loans.

Larger Lump Sums Can Be Invested Into Single Loans

Large lump sum repayments can affect your overall long-term returns detrimentally. For example, let’s imagine you have a total of £2,000 invested through Ratesetter. One of your assigned loans is £1,000 paying 6%. If that loan repays after six months and rates have dropped to 5%, your overall returns will be much worse than if your £1,000 had been split into many smaller loans. The likelihood of all the smaller loans repaying early is slim versus a single larger loan. Also when loans repay, cash drag can occur if you have to wait for favourable rates before reinvesting. It’s important to pay attention to the early repayment notification emails so you can re-lend as soon as possible otherwise the balance can idly sit in your account.

Set Your Own Rate Option Not Easy To Find

Ratesetter makes this page rather difficult to access although you can directly access it by clicking on the loan rate box. I’m starting to wonder if Ratesetter made this page purposely difficult to find.

When lenders use auto-lend and are willing to loan money at low rates, Ratesetter can loan money to borrowers at lower rates making them more competitive against other loan companies. See my above tip on how to quickly locate the “set your own rate”.

No Email Notification When Monthly Payments Are Received

Small negative but an annoyance none the less. Sometimes I forget to log into my account and when I do remember, I find funds sitting in my account doing nothing. The way around this is to look at your loan repayment dates and set yourself a reminder to log in and reinvest.

My Strategy

Starting out I was extremely nervous about peer to peer lending. Ratesetter was the first peer to peer lending site I experimented with. I started out using the monthly term (now called Rolling), which paid 3.5% annually, and I was ecstatic to receive my capital and interest at the end of the first month. I reinvested for the next two months, did some research on the company and spoke with the staff. As I become increasingly more comfortable, I increased my investment and lending term lengths. I proceeded to lend using the three-year term at 5.8% and the five-year term at 6.6%. I continue to re-lend using the five-year term where I’m not seeing rates in the mid 6% range. I rarely use the Rolling account.

Due to fluctuating interest rates and higher lending demand, patience is needed to obtain better returns rates. I’m happy to move money to other companies if rates drop for more than a few days.

Ratesetter Review Conclusion

Despite the annoyance of fluctuating interest rates and the change to the Rolling Access product (Fair Usage Rule), I still continue to invest through Ratesetter when I can achieve decent interest rates (5%+). Ratesetter has been offering peer to peer loans since 2010. Its low default rates and longer operating history make it one of the safer peer to peer lending options. Ratesetter is a profitable business lending to prime borrowers with a lower risk of default. Many consider Ratesette to be boring since investment options are basic however in the investment world, boring can be good.

Lender return rates had been fluctuating but it’s still possible to obtain five-year rates in the mid 6% range. Ratesetter requires some hands-on time to achieve the best returns so I recommend staying away from the low-yielding auto-lend option. Most loans are unsecured and the company has yet to be tested by an economic downturn. Despite the downsides, if you are new to the peer to peer lending world, I recommend Ratesetter as a good starting point.

Click here to sign up for Ratesetter(New customers receive £100 cashback on the investment of £1,000 or more into an ISA or regular account. Offer can end anytime. See terms and conditions on the signup page. When you open an account through my website it helps me to continue to operate and offer reviews.)

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** This review is for information purposes only and should not be regarded as investment advice. Opinions expressed in this review are only opinions based on my own personal experiences. As with any financial investment, peer to peer lending involves risks, so never invest more than you can afford to lose. **