Beware of Early Repayment on RateSetter

Written by Karen Bryan

ratesetterI have some cash in RateSetter’s rolling market (where money is invested for a one month period).

I received an email from Ratesetter informing me that part of my investment had been repaid early.

I have my reinvestment instruction set to automatically reinvest repayments at 3.2%.

Fortunately, the repayment was reinvested within six minutes.

However, this does highlight potential problems with having money invested with RateSetter.

For example, if you need the money by a specific date, then an automatic reinvestment on an early repayment will mean that the end of one month period will be later than expected.

This issue could be more problematic if you want to invest your cash long-term. For example, you invest for one year with RateSetter. Let’s say that your cash is repaid early, six months into the twelve month term. Automatic reinvestment would mean that your cash would be tied up for six months longer than you anticipated when you made the initial investment.

You do have the option to set up an instruction for any repaid investments to go into your holding account. But your cash doesn’t earn any interest in a holding account.

Also it is possible that the rate of interest paid on a one year RateSetter account could have dropped (or increased) at the time of the early repayment. This means that your return is not guaranteed the way it would be if you put your cash into a standard fixed rate one year account with a bank or building society.

In addition, you need to factor in that money lent through a peer-to-peer website, such as RateSetter, is not guaranteed under the Financial Services Compensation Scheme.