“Ebay for savers”. That’s how Licuro.com – a new site claiming to be Europe’s largest online auction house for savers – is being marketed. But while the site undoubtedly has high novelty value, that’s unfortunately about all it offers.
In theory Licuro.com has come up with the perfect product for lazy savers. No more trawling around to find the best deposit rate for your cash. Instead you pay a fee – currently £5.75 per auction, or £33.35 for unlimited annual use – and the site does all the work. You specify how much you want to save and for how long, and Licuro promises to deliver competitive quotes by email from a range of deposit takers. You are then free to accept or reject any of the offers. The site already operates in Denmark and claims to have signed up around 8,000 investors and £2.2 billion in deposits. What’s not to like?
The problems with savings auctions
Well, two things actually. First, the poor interest rates. Licuro claims that because deposit takers can see the rates being offered by rivals, the competition to secure your savings should mean you get a good one. But like the FT’s Steve Lodge, I tried the site for a one-year deposit – minimum £25,000 by the way – and got an offer of 2.4% (he got 2.3%).
That’s well below the rate I could have got by picking a Post Office one-year bond paying 3.85% via a comparison site such as moneyfacts.co.uk. Meanwhile if I want instant access to my money, Alliance & Leicester currently pays 3.15%. So Licuro’s rates just don’t stack up.
I also tried rival auction site maxbips.com, which charges an annual fee of £49. There the minimum deposit for a year, using the “free rate indicator”, is £30,000, on which I could get 3.7%. Still less than the Post Office rate. What’s more the Post Office minimum deposit is just £500.
On rates alone then, sites offering free rate comparisons for savers are a “more compelling proposition” as Kevin Mountford, head of savings at moneysupermarket.com puts it. Sure, he’s bound to say that, but for now he’s right. Licuro claims that as it adds more savings institutions to its database, rates will pick up. Until then, avoid.
The second problem is those auction fees. Until the rates on offer are higher than you could get elsewhere for nothing, why bother? Besides, says Szu Ping Chan on lovemoney.com, if it’s juicy rates you are after, and you don’t mind a bit of risk when you’re auctioning off your money, there’s an alternative.
Zopa – higher risk, higher rates
Social lending sites such as Prosper and Lending Club have been around in the US for years. However, lenders have to be US residents. Zopa.com on the other hand is open to UK savers.
You can lend any amount from £10 and pick a three or five-year term, paying a 1% fee on any amount lent. Zopa then matches you with needy borrowers – at least 50 of them once you lend £500 or more. This spreads your biggest risk – default. Because you are lending to individuals, not savings institutions, you are not guaranteed to get all of your money back. And unlike Licuro and Maxbips, there is no Financial Services Compensation Scheme safety net to protect the first £50,000 of your cash. However the overall default rate has averaged about 1% over the last two years, and Zopa puts borrowers through credit and identity checks before accepting them.
The big upside from a lender’s perspective is the attractive rate on offer. Returns, before bad debts but after the 1% fee, range from 6.7% for a three-year loan to the lowest risk A* category of borrowers, to 12.2% for a five-year loan to the riskiest Y (young) borrowers. The average rate earned, according to the site, is 8.2%. That beats even the best five-year deposit rate of 5.4% from Yorkshire Building Society by some distance.
Right now it’s tough getting a decent savings rate. And unfortunately online auction sites can’t help most of us. But, for some eye-catching savings rates, plus the sheer satisfaction of bypassing our accident-prone banks and building societies, Zopa is well worth a look.
• This article is taken from our weekly MoneyWeek Saver email.
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