• expired

$150 Bonus When You Invest $2000 for a 3 to 5 Year Term Investment + Interest (Rates: 3yr ~6.1% P.A., 5yr ~8.5% PA) @ RateSetter

850

Saw an ad in Money Magazine(read for free on PressDisplay) for new signups to RateSetter.

They are offering a $150 bonus when you invest $2000 in either a 3 or 5 year loan. This is the biggest bonus including referrals for Ratesetter. $150 bonus will be paid within 30 days. T&C

So putting aside the interest rate (currently ~6.1% p.a. for 3 years) a $150 return on $2000 equates to 7.50% total or 2.44% p.a.

Keep in mind that this is not eligible for capital gains tax (e.g. 50% discount on tax) as this will just count towards your annual income. Things like ETFs may be an alternative option. Tax-wise, investing in your Super may be a better alternative due to lower 15% tax albeit it's locked away until you retire. You should always consider taxation with your investments. At the end of the day, the government always wins! Seek professional advice as this is just a general comment.

Read the comments from the past 4 years of deals. The negative comments in previous Ratesetter deals have been accusations of being Ponzi scheme. None of this has ever eventuated however past performance doesn't indicate future results. Also a worry for some negative commenters has been what happens if the defaults get too high. I've included the tables below:

Current Funds on Loan (as of time of posting):

Status Value % of total funds on loan
Loan up to date $189,769,695 94.74%
Payment up to 30 days late $192,884 N/A
Loan 1 month in arrears $1,293,863 0.65%
Loan at least 2 months in arrears $3,603,369 1.80%

Statistics since Inception

Total amount lent $409,703,473
Total principal repaid by borrowers $209,394,265
Current funds on loan $200,309,208
Current estimated bad debt rate* <3.9%
Current estimated bad debt* $7,717,382
Current estimated default coverage ratio* 1.4x

Australian financial services licence number 449176
Australian credit licence number 449176
ABN 571 666 466 35

Referral Links

Referral: random (211)

$50 for referrer and $50 for referee.

Related Stores

Plenti (Previously RateSetter)
Plenti (Previously RateSetter)

closed Comments

  • +4 votes

    Free money for new lenders. I’ve been using RateSetter for years and I’m very pleased with the interest I’ve earned.

  •  

    1.4x is a somewhat risky default coverage ratio for a product like this. If bad debts are at 3.9% then that only leaves a 1.56% margin.

    • +3 votes

      Default coverage ratios were not in my commerce course. Please explain

    •  

      Thanks for this

    •  

      Yes, the coverage ratio has dropped a lot over the last year. Bad debts haven't risen all that much though, it's more a result of Ratesetter adding less to the provision fund.

      One thing to bear in mind though: even if the coverage ratio drops below 1, meaning you're almost guaranteed to lose some of your principal, given how much higher their interest rates are than what you can get from any other interest bearing investment, that could still be a fair trade off.

      As for those people who suggest chasing dividends at the share market: they totally ignore that they put all their capital at risk with no such thing as a provision fund to buffer losses in share values…

      • +1 vote

        Most people don't ignore this, but a franked dividend of 5% is much better than a 5% interest return due to the tax advantages of franked dividends.

        • +1 vote

          But you also might be putting your capitals at risk if the stock prices were to go down if you only look for franked dividends.

    • +1 vote

      It is a ratio of 'Provision Fund' to 'Expected Bad Debt'. It's a multiple. They are saying they believe that the provision fund is 40% larger than bad debts.

      •  

        It's worth unpacking that.

        It's not 40% larger than the amount being loaned.
        It's not 40% larger than debts that are < 30 days, > 30 days but < 2 months and so on.

        It's explicitly loans classed as bad debts where it's likely to not see a return on capital.

        The percentage of debt classified as 'bad' would be extremely small but I'm figuring the risk has always been on how they classify and follow up on debt going bad as this is basically the issue behind market crashes in the past (i.e assuming a debt was good and it turned out it wasn't.. either because of negligence or simple ignorance of the true nature of the debt)

  • +7 votes

    I wouldn't go for it. It's too risky! Those sort of small financial companies more likely to go bankrupt in a few years time. It doesn't matter if they have a licence.

    • +3 votes

      Not responding to other parts of your comment, but I don't think RateSetter would be considered small anymore? Maybe a few years ago though..

    •  

      The housing market is in it's correction phase. These rates seem too high, I can't see how they can afford to pay out the interest at the end. How in the world can they generate 6.1 p/a over 3 years in the current market? Seems rather risky.

      • +2 votes

        Directly from interest paid by borrowers. If borrowers are paying lower rates then lender returns are lower and vice versa

      • +4 votes

        As yupyup said, RateSetter matches borrowers with investors when it comes to personal loans. See borrowing. Say Sally needed $20,000 over 5 years to buy a car. Bob has $5,000 in the market, John $10,000K, and Fran $5,000. Let's say they are all around asking for around 6%, then the loan is booked and RateSetter gets it's little share for setting up the transaction.

        They've also got green loans. So if you are looking to borrow to setup solar panels etc. Green Loans. Basically P2P lending.

      • +3 votes

        6.1% is high, but not as high as 19.8%, which is what you'd pay for a credit card. If you look at the data, a heavy amount of borrowers are from debt consolidation services.

  •  

    Stockmarket ASX200? Check out Dividend Yield scan for (IMO) a safer option.
    https://www.marketindex.com.au/analysis/dividend-yield

    • +9 votes

      I disagree. Having done Dogs of the ASX and a few other dividend focused methods before, the dividends often drop dramatically as the data is based on past performace. In this case the data is 6 months old as that was when the last dividend was declared. A clearer picture will be available when this reporting season is over.

      Looking at the 31jan2019 chart, there is no way AMP or IOOF will maintain their dividend.

      The other financials (banks, PTM, WAM, etc), will also probably drop their dividend in the coming 12 months.

      The property trusts are a pain if they have a similar payout structure to Sydney Airport & Westfield as any capital return has to be adjusted off the cost base.

      HVN is high because it hasn't accounted for last years share issue / capital raising.

      I have nothing against shares (I have a reasonable portfolio) but to chase dividends alone is a crap shoot.

      disclosure: I own shares in WAM, PTM, CBA, NAB, WBC & HVN.

  • +4 votes

    I signed up with Ratesetter in late 2016. I haven't had any issues.

    They've re-jigged a few things. Dropped the 1 year loan and you have the possibility to exit a 3 year loan if they can match with another lender.

    The 1 month interest rate is fairly rubbish (<3%) as a result - I can do almost as well (2.4%) with my bonus savings at QUDOS.

    I'm currently directing my funds into the National Clean Energy fund (6%+) because I have a green leaning. There's only $2500 there so it's not like the world will stop spinning if they go belly up.

    • +1 vote

      What is the investment option with the National Clean Energy fund (6%+)?
      Can you provide a link please?

    • +1 vote

      That National Clean Energy fund scheme sounds cool. I like the way the money you lend is directed towards a specific green outcome, rather than the rather vague, albeit very important and necessary personal debt consolidation.

  •  

    When investing only $2000 I feel this is considerably safe enough, has a good track record, and you are repaid P&I monthly.

    •  

      Wait so P&I are paid monthly to a nominated account? Sorry if this is a dumb question, just trying to get my head around it.

      • +1 vote

        Interest paid monthly.

        Principal paid back in alignment with what period you have invested for.

        Sometimes people get out of their loan early and you get an early principal payment.

        There is a facility on the platform to re-invest automatically in whatever financial vehicle you nominate.

      •  

        You can transfer it out as soon as it's laid to you, seems to take 1-2 days for funds to appear in your bank account.

    •  

      Yeah go for it, 6% interest rate and $150 is better than 2.87% in a bank account although some extra risk.

      I'm currently have $2000 in 1 year market with the $100 deal a few months back,

  • +3 votes

    Remember. The rates they quote (6.1% and 8.5%) assumes you reinvest the interest received. If you choose to withdraw the interest, the % returns are considerably lower. In other words, u will only get those stated returns if u keep all your money tied up with them in perpetuity.

    • -3 votes

      No it's not. 6% is 6%. Eg. Invests $1000 and you get $5 as interest back every month.

      •  

        Padman is right unfortunately and its actually quite a big detail to be aware of with ratesetter. Source: i have read the pds top to bottom and also called ratesetter and discussed at length. Check these sources if you want more info

      • +4 votes

        Read section 7.8 of the PDS.
        3 Year Income: the interest rate displayed represents the amount of interest you would receive annually assuming that as payments are received, both capital and interest are reinvested for the remainder of the investment term at the original interest rate.

        The catch is you can't really reinvest the principal and interest for the remainder of the term, given they only offer 1 month, 3 year and 5 year options. So you can't get the stated returns unless you continuously reinvest with them. The moment you stop reinvesting, your % return drops.

        They don't openly say this so many people get caught out when they get a much lower return because they hadn't read the PDS.

        •  

          Hmm sorry, a bit new to this. so I can only get those numbers if i keep reinvesting? but then the reinvestment is then locked away for another 3-5 years right depending on which market you pick for reinvestment? Assuming you automatically reinvest every month back into the 5 year market, in 5 years time, you'll have a bunch of loans finishing that are 1 month apart roughly? I don't know if what im saying makes sense.

          •  

            @HappyXD: https://www.propertymetrics.com/blog/2014/06/09/what-is-irr/

            Look under 'What IRR is not'

            This is familiar to people that have taken a first year finance course.

          • +2 votes

            @HappyXD: Let's say you invest $2000 at "8.5%" in the 5 year market, and the monthly repayments is roughly $40 (principal and interest). After a month and 3 business days, you get the first repayment of $40. If you reinvest it, you start a new loan (of $40), separate from the 1st one.

            Another month passes, you get anther $40 repayment from 1st loan. If you reinvest it too, you start a 3rd loan (of $40). Then another 3 business days later, your receive the repayment from the 2nd loan (of $40), probably $0.80. This time you can't reinvest straightaway because it's less than $10. You can wait for more repayments to clear, or withdraw it, or transfer more money in.

            So as you can see, if you keep reinvesting, you'll create more and more loans, and you'll keep extending the "final end date" of your investment. So the exit strategy would be to either stop reinvesting or switch to shorter term loans. In either case the return would obviously be lower.

        •  

          It assumes you reinvest it at the same rate as well, which can also be hard. Like I have repayments from 3Y loans that were made last year at a rate of 8.3℅. There is no way I will get 8.3℅ now. It would involves wasting time leaving money in the non interest earning holding account, and even then, no likely to get that rate no matter how long you wait.

        •  

          On my 5 year ratesetter loan I've had $837.78 paid in interest on a loan of $3,958.64, over 27 months. The rate for the loan when I lent the money was 10.2%.

          Now because it's a little tricky to calculate the exact rate, because the principle gets paid back monthly, it looks to me like I have been getting paid 10.2% of the money on loan for the whole duration. The repayments are not re-invested monthly and are withdrawn to my bank account.

    • +2 votes

      Yep, it's a tad lower. Not all that much though, just a few decimal points.

      What Ratesetter are doing is to take into account the effect compounding has during the year (not across years). Because borrowers repay monthly not annually they would otherwise pay an effective interest rate that's a bit higher than the one they agreed to.

    • +2 votes

      Note that the Vanguard Retail Growth fund has performed at 6.55% per annum since inception, and 8.65% per annum over the past ten years.

      To compare with Ratesetter periods - 7.14% for 3 years, 7.01% for 5 years. Although it's not really a like for like comparison as Ratesetter periods are forward looking, and Vanguard's periods are past returns.

      Obviously a different product - it includes capital growth and income, and it's very volatile year on year, but it's a whole lot more diversified than peer to peer lending.

      https://www.vanguardinvestments.com.au/retail/ret/investment...

      (Min investment $5k - Quarterly distributions)

      Just putting this up here as I found the broad correlation in returns interesting - in dramatically different investment products.

      • +1 vote

        Good point. We seem to be in a bit of a correction right now though. What were the returns for the last 12 months? I'd be inclined to put my money in a low risk product with ~3-4% returns for the next 12 months and then consider reinvesting.

        But I can't because my portfolio has already been smashed so I'm sticking with it ;)

        •  

          Yup, previous year's returns were: 0.97%. Which hides the fact that it was sitting pretty on around 9% or something until the correction around November 2018.

          Year to date is 3.51%, but that's only from 1 Jan to 31 Jan 2019.

          So basically you need to look at a longer time frame if contemplating something Vanguard - but if you do it then the average returns over periods of 7 years + are pretty good.

          But ultimately you get much greater (and often disconcerting) volatility, but you are also hugely diversified. With Ratesetter you get a set % return figure, but your investment is concentrated towards one class of unsecured debt with a (frankly meagre) provision fund.

          Each to their own obviously.

      •  

        Hi there, what do you think about REIT etfs? There is also the option for Us reits and I have even seen healthcare reits.
        I guess the end of the day I should pick which one with the risk profile I can live with?

        •  

          I'm not sure if this question was addressed to me, but I'll answer anyway.

          Excluding obviously scam and speculative investments, there's really no objective good or bad investments. It really just comes down to your risk profile and your inclination. I'm an indexer, after having a bit of experience trying to be a value investor, so take whatever I say with that bias in mind.

          If you think that RE will outperform other sectors, and if you think US located REITS or Healthcare will outperform, and you're willing to take a punt, and you're in a position to do so, then why not. Demographic shifts towards older populations living longer suggest that healthcare will be in greater demand - but it doesn't necessarily mean healthcare companies or healthcare REITs will do better than other companies. Just because a sector is hot, doesn't mean that companies or even sectors do that well.. It comes down to their business fundamentals.

          I think it's worth looking at the asset allocations that these vanguard funds have and using them as a benchmark or starting point.

          Edit: I should clarify, I'm very reluctant to make bets that any one sector, or business will outperform one over another. Been burnt too many times. Indexing has proved to equal or better my best stock picking years, when you factor in a longer time frame.

      • +1 vote

        I had money in 4 of Vanguard's Index products before I got divorced (sold Vanguard & Colonial First State managed funds and all the shares that weren't doing so well to make my tax situation clearer).

        Even though they say distributions are quarterly, this isn't always the case.

        Overall I'd rate them as a good low fee area to put money as a long term investment. The returns in a 10 year period (2007-2017) weren't huge but they were better than the bank.

        I think diversification is key in order to manage risk.

        Of my total net wealth I have (rounded off):

        44% - Principal residence
        29% - Superannuation (weighted towards international shares)
        15% - Cash (waiting for an investment)
        11% - Listed Australian shares in 15-20 companies
        1% - Unlisted shares

    • +6 votes

      This lack of transparency is a no-no. They are monetizing in the ignorance/nuances within the term and conditions.They should include some examples in their website. For example, real return rates if the user request the money before the term, at term birthday, after reinvestment, etc. A table would also do the work…but wait, let sign them in first…

    • +2 votes

      I invest a bit with ratesetter. The odd lump sum. As repayments come in, I withdraw immediately.

      The way I use it is as a complement to my offset, where I keep ample cash savings. I put the odd, small, not selling the farm sized sum into ratesetter in my low incomes wife's name occasionally and as repayments come in, sweep them immediately back into my offset. In this way, I'm taking a partly elevated risk on a portion of our savings and getting an approx 4% top up in effective after tax return on whatever sum happens to be invested at that moment.

    •  

      The rates they quote (6.1% and 8.5%) assumes you reinvest the interest received.

      To put this into perspective, if you lend your money at the quoted "8.5%", your interest repayments are really ~8.186%. If you are able to keep reinvest all the repayments at "8.5%", then in theory the 8.186% can compound to ~8.5% after a year.

      In practice you will get lower than 8.5% because the repayments take 3 business days to clear (so 5 days over weekends, even longer over long weekends). Also, if the repayment is less than $10, you can't reinvest right away and have to wait till more repayments clear. And because the market fluctuates, so you may either reinvest at lower rate than "8.5%" or wait longer to get higher rate.

    •  

      If I borrow 100k from a bank at 4% interest they don't expect 4% of 100k for the next 25 years. they expect 4% of whatever I owe. In the same way I expect 8.5% interest on whatever I'm owed at the time for the 5 years. They take a 10% cut on that number though and that's the bit that you don't spot if you don't read through it carefully. 8.5% interest actually yields 7.65%.
      Still good if you get $150 almost straight away except that the current yields seem low.

  • +1 vote

    New sign ups only presumably?

  •  

    Isn't funding.com.au better with rates and from security prospective?

    •  

      Is funding.com.au better? I'd want to know as well.

    •  

      Any sign up bonus from those guys? They look ok.

    •  

      Min 5k or 100k investment. Isnt for everyday investor this one.

      • +1 vote

        $5k is very much in line with "everyday investor" scale… Most retail managed funds have that as their minimum buy-in.

  •  

    I have some skin in the game, one thing I remember reading was that as these loans age they are more likely to default, and then they added a facility for early withdrawl of funds.

    Good way for the innovators to get there money out leaving the imitators and lastly the idiots to foot the bill.

  •  

    Seems like a nice option for lower income earners.

    At your average 30% + medicare rate the returns are hardly worth it if you have an offset account.

  • +1 vote

    Can you exit out of the loan investment after you got your $150 bonus? Terminating like term deposit before maturity?

    •  

      Would like to know as well

    •  

      You can do an early access transfer but the fee is 3%, so you would lose $60 on the $2000 loan.

  • -2 votes

    Buy one bitcoin. In five years you will have $100000.

    • +3 votes

      Buy 1 bitcoin 13 months ago and you lost $20,000+ :D

      • -1 vote

        Good yep. Buy the top, sell the bottom.

  •  

    got excited when i saw this, thought it was for everyone not just new customers
    sigh

  •  

    I don't know if this is something too good to be true. A 3 year investment ($2000 AUD) gives a estimated return of 6.1% is somehow too risky?
    Not sure. Just personal opinion to be more conscious.

    • +2 votes

      It's only $2000. If you want it "safe" like in a bank, then your $50 pa interest hardly counters inflation. Even then it's still not safe from possible bail in should the economy need stimulus.
      In this offer you get $150 sign up bonus a well, and that alone would take a long time to accrue as interest in a savings account.

  • +5 votes

    While I am not going to take the offer, just want to thank OP for the detailed post.

  •  

    They are running a promotion because the attractiveness for investors has decreased. The ' estimated bad debt rate' was <3.4% and 'default coverage ratio' was about 1.7x 12 months ago, and the rates were 2% higher for 3Y and 1% higher for 5Y.

    Also, why don't the percentages under 'Status' add up to 100%, and why is the 'Up to 30 Day' represented as 'N/A' (Just giving anyone from Ratesetter a chance to clarify. It doesn't look good for credibly when something that should add up to 100%, does not add up to 100%).

    •  

      The only possible reason I could think of for the percentages don't add up to 100℅ is that ' loans 1 month in arrears ' ( assume 1 month = 30 days ) only includes loans that are EXACTLY 30 days in arrears. That is, loans that are 31- 59 days in arrears are not shown, and they account for the missing percentage. But that seems a strange way to present data.

      Assume that days 31 - 59 are roughly equal. That would mean 28*0.6% = approx 14% ( much more than is missing from the 100% )

    •  

      but surely more investors isn't going to make it more attractive. What would make it more attractive was enough borrowers that the 5 year rate was back above 9%

  •  

    Quick question about RateSetter and early repayments. I am an existing lender and have noticed that quite often loans are paid back early. The sceptic in me thinks something sinister is going on e.g. My original rate for the loan may have been 8.5%, but after the early repayment, the rate drops to 6%. Is it possible RateSetter themselves are paying the loans back early as more funds become available? E.g. The loan was never actually paid back early by the borrower, RateSetter is still charging the borrower 8.5% but now only paying me 6.5% as more money becomes available. Is this possible?

    •  

      I don't know if this helps but RateSetter release their loan book every 3 months which gives some details about all their loans since 2014.

      Looking at their loan book from December, they've had 29,798 loans since 2014, of those 12,322 (41%) have made early repayments and 6083 (20%) have been fully repaid where the last expected payment date was after 31 Dec 2018.

      •  

        Hmmm, I didn't know about this.

        Something interesting: "162% coverage against expected bad debt" - That was said on 2 Jan 2019. Now, the default coverage ratio may be rounded to 1 decimal place (and I can't be bothered to look up the exact numbers and divde) but lets assume the current ratio is 1.44x (and it is rounded down to 1.4x). That is quite a significant drop in just over a month. 162% to 144%.

        I am reading: https://www.ratesetter.com.au/blog/posts/2018-a-year-in-revi...

        under 'Deliveringg value for our investors' heading.

  •  

    For people who haven't bought a home yet the First Home Super Saver scheme might be an option: https://www.ato.gov.au/general/new-legislation/in-detail/sup...

    Put away money at 15% tax and be able to pull it out to invest in a house.