Spring clean your finances – double the interest earned on your savings

Those looking to knock their finances into better shape this year should explore Zopa lending - a new alternative to savings that last year paid out more than double the average deposit account, and more than the very best accounts available.

Zopa (zopa.com) - the world’s first marketplace where people meet to lend and borrow money - today says that consumers determined to make their money work more effectively for them this year could benefit enormously by looking to a previously unavailable savings and investment tool – lending to other individuals through online ‘Social Lending’.

In 2006, people lending via Zopa earned an average rate of return of 6.75% p.a., while some lenders offering loans to higher risk individuals enjoyed returns of up to 14% p.a. (these figures are after bad debt and fees, but before tax). This is in marked contrast to the much lower returns paid out on savings accounts where even the best categories of account returned an average of less than 3% p.a. gross. In 2006, even tiered, notice accounts paid out an average of just 2.92% p.a. gross (Source: Moneyfacts 4.1.07).

Even now, in January 2007, after the last Bank of England interest rate increase has pushed many rates up, the best savings account available is still only paying 5.80% p.a. (Nottingham Building Society 60 day notice postal account, source: Moneyfacts 4.1.07)

James Alexander, co-founder and CEO of Zopa said, “The enthusiasm so many people feel at this time of year to get their finances into better shape would be well-rewarded by checking how Zopa can transform the returns they get – and without having to take significantly more risk. Zopa lenders last year enjoyed returns well in excess of those paid out by even the very best savings accounts, which probably explains why so many are lending more and more.”

“If you can afford to lock some of your savings away for 12 months or more, then frankly you would be silly not to explore Social Lending. And rather than lining the pockets of the bank you were saving with, you will have the pleasure of knowing you are actually helping out other individuals who need a competitive loan. You can even get to see what they are using the money for and receive notes of thanks from them!”

Consumers nervous about the risks involved in lending should be reassured by the extensive and highly effective measures taken by Zopa to keep risk to an absolute minimum. In fact, bad debts through Zopa since launch have been less than 0.05%, a rate radically lower than that typically experienced by banks. Zopa’s measures include wider and more extensive credit checks than the banks use, with a greater emphasis on being sure the borrower can afford to repay the loan. Further steps include spreading lenders’ risk across a wide range of borrowers – all loans of £500 or more are spread across at least 50 borrowers. Full details of all the measures taken to reduce risk can be seen at zopa.com.