Comparing the Peer-to-Peer Lending Sites RateSetter and Funding Circle

Written by Demetrius Vouyiouklis

I have been investing with both RateSetter (RS) and Funding Circle (FC) for different periods of time and they have both common and different approaches to investing my money and achieving my returns.

Both RS and FC are peer-to-peer lending sites, meaning that your money is not currently protected by the Financial Services Compensation Scheme (FSCS).

Your investment is either lent to individuals (RS) or small businesses (FC), both of which represent a higher-than-average risk. In return, earnings are higher than those achieved through traditional FSCS-covered deposits and investments (e.g. via banks, building societies etc).

During my time of investing, pre-tax returns have been 3.5-5% (RS) and 6-7.5% (FC), depending on the category of investment and/or risk level chosen.

RS offers a monthly, annual and 5-year scheme, whereas FC offers two risk-related levels of investment, Conservative and Balanced.

Apart from the variety in levels of returns and term (time) of investment, some other differences between the two companies that I have noticed are:

The speed with which my newly invested money appears in my account once transferred from my bank: with RS it’s within a few hours on the same day, whereas with FC it’s of the order of 2 working days.

The speed at which my money can be invested once it’s in my account: provided I go with the market rate or near it, RS will invest within hours. By contrast, FC takes about 1 week to invest an average of £500.

Diversification: RS splits my money between 1-5 loans, whereas FC will invest it in loan parts, whereby my total exposure to a single company is between 0.5-1% of my total investment

– Early repayments: when money lent out is repaid early in RS, it either sits in my holding account doing nothing until I find a new deal for it, or may be re-invested at either the current market rate or a rate chosen by me – however, this new rate is not usually as good as the pre-early repayment rate. This can be annoying, especially for longer term (1-5 years) loans. I have not yet had an early repayment issue with FC, or if I did I did not notice it, which may be related to their much higher degree of diversification.

Both RS and FC will let you take your money out of the ‘live’ investment if another buyer is found, however, RS will charge a fee for the 1 and 5 year investments.

S will be introducing an ISA during 2018, however, I have not heard anything along these lines from FC.

RS and FC are involved in different markets, which surely determines their structures and strategies. This also makes it very difficult to compare them for the relative risk of the company going under.

Despite the delay of my new money to appear in my FC account and the slowness in investing the money by FC, I like their higher returns, the lack of early repayments and their high degree of diversification. I also like the idea of the upcoming ISA by RS. Since both RS and FC are riskier-than-average investments, I’ll probably spread my future risk between them, trying to achieve a balance of both higher and tax-free returns.