Savers eschew high street lenders for peer-to-peer lending

Many savers have said goodbye to their high street savings account providers, instead turning to peer-to-peer lending websites in order to get better returns on their cash, experts say.

With the three largest peer-to-peer websites opping a £250 million milestone recently, the industry has been welcoming plenty of new savers looking to be put in touch with borrowers that can’t secure a personal or business loan from a traditional lender due to banks and building societies tightening their credit requirements. The phenomenon has grown to the point where the Bank of England’s Andy Haldane, the Bank’s executive director for financial stability, predicted a future where High Street banks could be replaced by peer-to-peer lenders or at the very least compete with them on an even footing.

It’s not just the Bank of England that has noticed the growing trend. The Government has said that it would be willing to throw its weight around on the issue, offering £100 million in government-backed loans to the peer-to-peer lending industry in order to allow it to expand into the business lending sector – one that has been suffering quite badly, with many small businesses being unable to raise working capital from sources such as commercial lending due to the credit crunch.

With savers being offered interest rates anywhere from five per cent to eight per cent to these lenders in order to allow them to facilitate their peer-to-peer lending scheme, it almost seems a no-brainer that savers would leave their High Street accounts in droves for a rate of return that actually leaves them with a bit of positive growth afterwards. However, there is an element of risk, as the Financial Services Compensation Scheme does not guarantee deposits made to peer-to-peer lenders as it does with traditional banking institutions.

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