Former maths and IT teacher Bob Ford made his first Zopa loan as an “experiment” when he retired five years ago. The 62-year-old received a lump sum as part of his pension settlement, and he was keen to look at different potential investments.
An inflation-beating experiment
“I had heard about peer-to-peer lending on the internet or in the financial pages of the newspaper and I was interested to see how the mechanism worked,” says Bob, who lives near Nottingham. He initially lent £500 and has made a handful of subsequent top-ups.
“Over five years I have made returns of between 5% and 6% a year,” he adds, although this is after bad debts and charges. “In that period I have had five bad debts.”
Bob used the rest of his pension lump sum to invest in a stocks-and-shares ISA as well as an investment product from National Savings and Investments which was designed to protect against inflation. “As it turns out inflation has been very low, so I won’t get much back from this,” Bob adds.
Helping his family… and borrowers
Bob uses his extra money to help his four adult children out from time to time, as well as for the likes of holidays and home improvements. At the moment, one of his daughters is considering taking her first step on the property ladder, so Bob thinks he may need to provide some financial support.
But when he gets the chance, he expects to increase the amount of money he lends through P2P platforms. “I like the social aspect – the fact that you are lending directly to other people,” he says. “I have also been looking at P2P loans to businesses – the returns seem to be higher but of course the risks are as well.”
The Innovative Finance ISA - a welcome development
Another reason to look at other types of investment was Bob’s unhappiness with the rates on cash ISAs at the major banks. “Considering what they have done and what they are doing, I really think the banks need to be put under more political pressure to pay better rates,” says Bob. “And I don’t like the way they pay one rate and then after 12 months it changes. Most people just don’t bother to switch or shop around.”
Bob thinks that the introduction of a new ISA which will cover P2P loans next year will be welcome. “If I can get the same returns and pay no tax as well, that will be great,” he says.