In this current low interest rate environment, savers have been the worst hit. Many savers are beginning to feel ‘defrauded’ and rightly so. With the bank of England base rate at a record low of 0.5% for the past 6 years, those people with debt have benefitted at the expense of savers.
In years gone bye, people would have had no choice but to put their savings in low-interest rate high street bank savings accounts. But thankfully for them, technological advancements in the personal finance field in the past few years has given savers an alternative means to save money – one that offers a far higher rate than high street savings accounts. Leading the personal finance advancement has been crowd-funding or peer-to-peer lending (p2p) . Crowdfunding has to led to people getting a higher rate of return on their savings then if left in the bank. There are many different crowd funding websites and each has its own merits and you can read an article I wrote detailing the different platforms here . In this article, we look the new kid on the block – loveFruitful.com.
The rate on your savings?
Fruitful opened its doors for business in November last year and it offers you a rate of 6% on your savings. This is a very high return in this low interest rate environment. Fruitful has promised to always give a return of 5% + the bank of England base rate, so if the interest rate rises, the return you get on your savings rise as well.
How is this rate of interest possible?
This is the first question you might ask yourself as I did the same. When something is too good to be true, it normally is. Thus, I went about doing my research to find out how they generate money to pay this kind of interest.
Fruitful lends your money to businesses that need a mortgage. This is a particularly niche area and I believe Fruitful are the first UK crowd funding website to target the business mortgage market. Because business mortgages are specialist products, not many financial service firms offer them. This in turn means that the rates of return for business mortgages are higher and they typically cost around 7% at the moment. Thus by lending to businesses, Fruitful is able to offer you a higher interest rate on your money.
How it works.
Fruitful gathers money from a vast array of savers like you (the crowd) in order to loan out to businesses who seek a mortgage on the property they wish to buy.
Although they are other mortgage crowd funding websites around, Fruitful is the first specialist business crowd funding platform in the UK. So unlike other peer-to-peer lending platforms where you set your level of risk or choose individual loans you wish to fund, with Fruitful, once you put your money on the platform, that’s all you have to do. The team takes care of the rest and they will ‘match’ your savings to different loans.
How risky is it?
I am a firm believer that any peer-to-peer lender exposes you to greater risk than the typical establishes high street bank. But because of this higher risk, you are rewarded with a higher rate of interest.
Fruitful states that all its loans are backed up by real bricks and mortar. So even if the borrower goes bust, fruitful will be able to recoup the loan, or most it, by the sale of the property the loan was secured on. Fruitful has even gone the extra mile to get itself FCA regulated.
But, like all other peer-to-peer lending websites, Fruitful is not covered by the Financial Services Compensation Scheme(FSCS) and thus there is no protection of money invested.This means that the government will protect none of your money if the company were to go bust unlike a bank account were the government has up to £80, 000 per account holder covered if your bank were to go bust.
As a rule of thumb, don’t invest more than 10% of your savings in non-regulated types of lending.
Why Fruitful as opposed to other Peer-to-Peer platforms.
- More ‘bang for your buck’ for a given level of risk by – With Fruitful, your savings are secured against actual mortar whilst on other platforms you don’t know exactly where your money is going. I for one am more confident if my money is lent out against bricks and mortar than against businesses as the former offers less volatility and risk.
- Get the same great returns irrespective of the amount you save and your timescale – Some banks or peer-to-peer platforms only offer the best rates to the savers with the most money but this is not the case in this instance. Furthermore, other peer-to-peer websites like Ratesetter only give you the best 6% annual return if you save for a minimum of 5 years. With Fruitful, you get this 6% return for whatever period you wish to save. I like this no discrimination policy as it helps small savers such as myself.
- No Fees – Fruitful does not charge you a fee for saving your money with them. Websites like Funding Circle charge a 1% annual fee and a 0.25% sale fee. Having to pay someone to keep my money does not make financial sense to me and that is way I would prefer to save on a platform that has no charges.
- Ease of use – The Fruitful website is easy to navigate and the ease of use of its platform is what has tempted me to save with them. What makes my experience even better is that the Fruitful team chooses who to lend my money to and thus unlike other platforms, I don’t have to worry about picking individual borrowers whom I should lend to. Fruitful also has a canopy fund meaning that you will always get paid even if they don’t get paid for whatever reason – this alleviates a lot of the stress associated with peer-to-peer lending.
Withdrawing your money.
One of the best parts about fruitful is that it has a Zero lock-in period which allows you to withdraw money at any time you like. This goes against high street lenders where you have to a have a lock-in of 2 to 5 years to get the best rates.
Fruitful also does not charge you to withdraw money. The withdrawal process is simple and it just involves a click of a button online and you will get your money in 7 days.
My experience so far.
I joined Fruitful when it launched in November. I was initially on a waiting list as they were taking on savers in batched and after around 2 weeks, I was finally allowed to open an account. The process of signing up was relatively straight forward. Once signed-up you need to pay in a minimum lump-sum of £250 to start earning interest. If you are depositing £5,000 or less you can simply do this by using your debit card. For amounts greater than £5,000 you will need to log on to your online banking and send the amount to the Fruitful bank account with a specific reference number you are given.
You will start earning interest from the day your money hits your Fruitful account. The interest is paid monthly and this is great as the effects of compounding work even better. So if you invest £5, 000 on 1 February 2015 this will grow at 6% pa (0.5% a month) over the next month so on 1 March 2015 you will have £5,025. Over the next month, interest will be calculated on the £5,025 and so on 1 April 2015, you will have £5,050.13 in your account.
Whenever I buy into investment such as this, I always look to take out a chunk of money to see how fast they pay and just to see if it’s not another ponzi scheme. I withdrew £750 last week and within 5 working days, the money was in my account.
Fruitful looks like a good alternative to high street savings accounts – and it should be treated as just that, an alternative for part of your savings and not a complete replacement. Only time will tell if crowdfunding websites like Fruitful are going to shake up the entire saving industry and be a force to be reckoned with. But for now, Fruitful looks like a great place to save a portion of your money if you are annoyed by the paltry interest you receive from high street banks.