Why P2P Lending is better than a Bank Deposit

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p2p lending vs bank deposit

Have you ever put your money in a bank deposit? If you’ve already tried that, you might have noticed that this kind of investment is no longer profitable, at least in most countries. If you haven’t, then it might be something you’re considering. That’s why we decided to prepare this short evaluation and help with your decision.

Not too long ago, bank deposits (a.k.a. term deposits) were the safest and most secure way to save money on the side and multiply it. However, in recent years, we’ve seen a huge drop in the interest percentage for these financial products. Rates have gotten so low, that even the small returns you accumulate can get eaten away by inflation. Bank deposits might be a good place to keep your money, but they’re not a profitable, nor scalable investment opportunity.

Bank deposits have been taken by storm and dethroned by more flexible services. The evolving FinTech market offers contemporary non-banking solutions, like crowdfunding, and more specifically, P2P lending. P2P investment platforms use the leverage of technology to minimize their cost and offer the best user experience possible. They can be a profitable opportunity for any investor, regardless of the amount of free funds they have at hand. Let’s compare this investment option to bank deposits and see why it might be a better choice for you.

 

Higher returns

It’s only natural for this to be the first topic of concern for any investor. After all, you want to put money down and see a stable profit. Unfortunately, bank deposits no longer offer adequate returns. In Europe, annual deposit interest rarely surpasses the 4% mark; with most countries having it under 1%. We’ve observed this trend for a decade now, and there’s no foreseeable change coming in the near future.

P2P lending platforms may offer an average annual return of 8%, depending on the types of loans you decide to invest in. If you dedicate yourself to a long-term strategy, you could accumulate very steady earnings in just a few years – drastically bigger than with bank deposits.

 

Accessibility and liquidity

Since bank deposits offer very low-interest rates, you should have a substantial amount of money to be profitable. We’re talking in millions here! Otherwise, you’re just keeping money in a bank account, when you can use that money to earn more. This discourages the average person and from investing, even if there are free funds at hand.

With P2P lending, you can start with as little as 10 Euro, experiment with various investment strategies, see what works for you, and then gradually raise the investment amount as you go. Also, you can reinvest your earnings to take advantage of accumulated interest.

Besides a low entry point, P2P platforms offer thousands of loans with varying levels of risk and interest, at any given time. At iuvo, we work very hard to provide high liquidity, so you can easily find a suitable asset that matches your strategy and your comfortable levels of risk.

 

Controlled risk

The reason people used to opt for bank deposits is that they’re safe. You put your money in the bank, and you wait. Interest accumulates, the deposit period expires, and now you either withdraw or reinvest. You don’t risk losing your money on a whim. However, if the bank goes bankrupt and its guarantee doesn’t cover the full amount of your deposit, you could be at a loss.

Regardless of their high liquidity and high turnover, P2P platforms are also a very safe place for your money. For example, at iuvo, your initial investment amount will never be lost, because of our Buy-back guarantee. We’re able to provide this guarantee because it’s agreed with loan originators that in case of borrower insolvency, they’ll “buy back” what was invested in the loan, and thus – compensate investors. This means you never lose your own money if a loan goes default – you only miss the chance to accumulate profit.

 

Diversification

A bank deposit is essentially equal to putting a significant amount of money in one place. You can get only as much profit, as your fixed interest suggests.

With P2P you can experiment and craft a diverse portfolio. For example, you could invest 80% of your free funds in low-risk loans that won’t bring very high returns but will bring stable returns. Meanwhile, you could experiment with investing the other 20% in high-risk loans, where profit is not guaranteed, but: 1. If you do get profit, it will be very high, and 2. Your initial investment is still secure, because of the Buy-back guarantee.

 

Conclusion

Unlike banks and bank deposits, P2P platforms are constantly striving to upgrade their services, making great leaps of progress in a very short time. You can start with a minimal initial amount and choose between varying proportions of risk and return. At the same time, it’s reassured by the Buy-back guarantee that your initial funds are safe. Worst case scenario, you zero out and get your money back without generating profit. This makes P2P lending suitable for anyone regardless of their comfort zone and their financial situation.

Sounds great? It is. Try it out by registering here!

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