Ratesetter Review – My Lender Experiences After 3+ Years

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Ratesetter review

Ratesetter Review (UK)

** Ratesetter review updated May 15th, 2019 **

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. Rates seem to be in the mid 5% range on the five-year term but sometimes I’m able to buy in the mid 6% range if I keep a watchful eye out.

My April 2019 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 *:
Launched:2010
Early Exit:
Autoinvest:
Provision Fund:
ISA Available:
Loan Types:Consumer, property, business
Loan Security:Consumer loans unsecured, property, asset-backed
Lender Fees:Avg. 1.5% exit fee on 1, 3 & 5yr products
Min Investment:£10
Time to Become Invested:Auto-invest is Instant, manual varies on rates
Time Needed Managing:
Low
Lending Agreements With:Borrowers
FCA Regulation:Full
Cashback Offer:
£50 bonus on £500+ or £150 bonus on £10,000+ 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 £50 bonus on £500+ or £150 bonus on £10,000+ investment into an ISA or regular account. (See terms on sign up page). 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
  • Auto-invest transactions don’t show you the rate your money was loaned at
  • Early loan repayments can leave large uninvested sums in your account if you manual invest
  • 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
  • Company operating at a loss
  • 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

Lending Works, Growth StreetZopa

Ratesetter’s Company Financials

Ratesetter made a post-tax loss of £21.5m for the year ending March 31st, 2018. 2018 company accounts can be seen here.

Ratesetter Review: My experiences so far

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, relative safety (or as safe as you can get in the peer to peer lending world), a provision fund and a possible exit strategy. It’s now 2019 and I continue to invest through Ratesetter.

I’ve switched my strategy from manual lending to using the auto-invest feature. Because of my hectic schedule, I don’t have the time to monitor my account daily. I found I was losing returns to money sitting idly by in my account. I don’t think my returns will alter much but time will tell. Incidentally, Ratesetter recently told me only 7% of all investors set their own rates. I was surprised by this low number.

I’ll report back with results after I’ve tested the auto-invest for a few months.

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 or set their own return rates.

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

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 own rates from 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”.

I believe 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 many peer to peer companies to make lending mistakes. 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 investment companies and many loans.

I would like to see Ratesetter operating as a profitable company. It has posted losses for 2018 and has just completed a funding raise.

How Can I Contact Ratesetter?

Email:invest@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: Ranges from 2.5% to 4% with a historical average of 3.1%
1 Year: Ranges from 3.7% to 5% with a historical average of 3.7%
5 Year: Ranges from 5.1% to 6.4% with a historical average of 5.8%

In March 2019 I was able to achieve five-year lending rates in the lower 6% range but as of May 2019, I’ve noticed rates have once again fallen and continue to be somewhat volatile.

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 about 0.25% to 1% less than advertised rates.

What Products Does Ratesetter Offer?

Rolling Market: This account is designed to be an easy access account. Access always depends on demand and supply and is never guaranteed. This account funds many different types of loans including consumer, business and property. There is no exit fee.

One Year: This account is a one year term that behaves like a bond. The one year account only funds property loans. You can exit early for a fee.

Five Year: This account behaves like a five-year bond. The five-year account funds many different types of loans including consumer, business and property, You can exit early for a fee.

How Are The Rolling Market Rates Determined?

One of the most frustrating aspects of being a Ratesetter lender is the fluctuating interest rates. For example, on the Rolling Market, I’ve seen rates in the mid 1% all the way up to mid 4%. A lot of luck is needed to obtain the best rates.

Rolling Market rates are calculated by taking the weighted average of all the previous days transactions between 6am and 10pm.

In March 2019, Ratesetter changed this weighted average by using a 28 day period to try to reduce the volatility in the return 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 charges an exit fee on their 1, 3 and 5 year products. The fees are as follows:

Rolling Market: No fee
1 year: 0.3%
3 year: 1% (for those invested in defunct 3 yr product)
5 year: 1.5%

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 exit fees are 1.50% on the 5 year product.

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 used to spend approximately 30 minutes per week using Ratesetter. To earn the best rates, I had to log on and make sure my reinvestment target rate settings were realistic otherwise money idly sat by in my Holding Account earning zero interest.

I’m now using Ratesetter’s auto-invest to free up some time.

Interestingly, Ratesetter informed me only 7% of lenders use manual rate setting.

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 smaller part of Ratesetter’s loan book.

What Are The Loan Loss Rates?

Loss rates on the Provision Fund covered loans were 2.4% for 2017 and 1.3% for 2018. 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 as of May 2019, Ratesetter lists the balance as £38 million, however, £13 million is in cash while £25 million is considered expected future funds. That will buy a few packets of Monster Munch! The provision fund supposedly has enough money to cover all defaults but this fund is discretionary, meaning the Directors decide when and if the fund is used. See the latest Provision Fund 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 changes will allow Ratesetter to act in times of trouble.

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.

THUMBS UP FOR RATESETTER:

Safety + Provision Fund

Ratesetter is considered by many 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 lending history dating back to 2010. Many lenders discount the importance of a company being operated correctly and having access to growth funding.

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

Low Default Rates / No Lender Has Lost Money

Loss rates have remained low and 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. Exit fees are 0.3% for  the 1 year product and 1.5% for the 5 year product.

The Rolling market still offers great liquidity and I continue to be able to sell quickly. 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 reviewTIP: Here is how you can quickly access the page that allows you to set your own interest rates.

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 review

THUMBS DOWN FOR RATESETTER:

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 to maximise returns so they might find Ratesetter frustrating.

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 are easy once you know how (click on the Last Matched Rate box in the sidebar).

Remember to set your reinvestment rates otherwise your repayments and interest will be invested at Market Rate. Make sure your target rates are realistic or you will experience cash drag on your return rates that could reduce your returns. When I manually invested and I thought rates were unattractive, I moved idle money to other companies such as Lending Works.

Ratesetter review

Ratesetter review

Exit Fees

If you plan on exiting from the 1 year and 5 years products, expect to pay fees. Remember there are no exit fees on the Rolling Market. If you do want to exit the longer term products, the cheapest way is to let your loans mature and withdraw your capital and interest payments.

Unsecured Loans

Ratesetter no longer publishes information about its loan book, but in December 2018, 73% of Ratesetter’s borrowers were 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 Last Matched Rates box as stated earlier in this review.

When lenders use auto-lend and Market Rates, your money will generally be invested at lower interest return rates.

No Email Notification When Monthly Payments Are Received

Small negative but an annoyance none the less. If I don’t log into my account regularly, 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

When I began peer to peer lending, I was extremely nervous as it was a new investing sector. 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 these days.

After Ratesetter informed me only 7% of their lenders’ manually set their rates, I am now testing the auto invest feature to see how much my returns change.

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 a good peer to peer lending option. Ratesetter states it lends to prime borrowers with a lower risk of default. Many consider Ratesetter to be boring since investment options are basic however in the investment world, boring can be good.

Lender return rates do fluctuate but it’s still possible to obtain five-year rates in high five or low 6% range. Ratesetter requires some hands-on time to achieve the best returns if you have the time to manually invest. 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, Ratesetter could be a good starting point.


Click here to sign up for Ratesetter(New customers receive £50 bonus on £500+ or £150 bonus on £10,000+ investment into an ISA or regular account. (See terms on sign up page). 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. **