1st January 2010
This week Dispatches, Channel 4's leading investigative journalism programme, was an episode showcasing how investors and consumers are being misled by banks and price comparison sites when buying savings products. Whilst consumer rights should be celebrated, and it was a welcome opportunity to expose some of the allegedly misleading tactics by the big banks, the documentary missed an opportunity to significantly showcase alternative finance companies, which are empowering consumers looking to make a return on their investments, and benefit companies which the major banks failed to lend to.
One of the main accusations made by Dispatches was that banks give misleading information to savers. This was illustrated with a handful examples from some of the UK's largest banks offering savings accounts with enticing headline interest rate returns, which rapidly deplete shortly after investors sign up to them. One of the more cases cited was Leeds Building Society, which slashed interest rates on one accounts from just over 3% to 0.85%. It is fair for this sort of behaviour to be highlighted as savers have been given a raw deal over the last five years, due to the Bank Of England maintaining interest rates at just 0.5%. Additionally, this is the sort of behaviour which alternative finance platforms are trying to remedy so that they can build up much needed trust again with investors. One way in which alternative finance platforms demonstrate this is by being as transparent as possible with all provided information. In the case of Crowd2Fund, we clearly list the interest rates of our debt opportunities, and these remain the same for the duration of loan repayments.
A shift in mind set is needed from consumers, in order to turn them from being savers to investors. The UK interest rate had been held at 0.5% since March 2009, and is not expected to rise until late 2015. This has been a measure to encourage spending, rather than saving and has decimated returns for individuals who at a minimum wish to maintain their buying power by depositing cash in high interest savings accounts. The knock on effect which this has had on banks is that accounts with historically high interest rates have been slashed.
Dispatches should have picked up on this nuanced point and explained that in a low interest rate environment, storing cash in a bank will not protect consumers against inflation, typically around 3%.
In such testing economic times citizens need to become investors as opposed to savers in order to maintain their net worth. Any element of investing requires some risk but this can be countered by investing in a range of different opportunities, with varying levels of risk. Alternative finance companies are perfectly placed to be able to offer citizens the returns they require.
Crowdfunding platforms such as Crowd2Fund list investment opportunities paying an average return of around 8.00%. Whilst we are fortunate in that the platform currently has a 0% default rate, we encourage our investors to apply a portfolio based approach to mitigate risk. Additionally, returns on our platform can be enhanced by investing into SEIS qualifying equity businesses, which help offset income tax on interest payments from debt companies.
Dispatches did an excellent job of championing consumer rights aligned against the big banks. On the flipside the programme should have devoted more screen time to alternative financers and how they can provide higher returns for investors. Britain is a world leader in alternative finance and this is something which should be celebrated and disseminated more widely.
