Peer-to-Peer Lending

• Current rates: 4% for Core and 4.6% for Plus after fees and bad debts

• Unlent cash kept in: RBS

• Min/max lend amount: £1,000/unlimited

• Money lent so far: £3.22bn

• Number of lenders: 76,000

The longest-running site, with decent rates and risk spreading

The UK's peer-to-peer grandpa, Zopa* was set up in 2005. In 2013 it shifted how it works, so it feels just like putting your money in normal fixed-rate savings - though remember that peer to peer lending is more like investing. You choose how much cash and how long you want to lock it away for, and you'll get a fixed rate.

Last year it changed its product offering again, and removed its Safeguard fund - but it still spreads your money across multiple borrowers to mitigate risk (see below). Anyone can now open an IFISA with Zopa, which has the same features of its non-ISA products with the benefit of any interest you earn being tax-free forever.

Currently Zopa offers two products:

• Core, which has a projected annual return of 4% after fees and bad debts, with a 1% fee to withdraw funds early. This lends to borrowers with a risk rating of A* to C, the lower end of the risk spectrum.
• Plus, which offers a higher projected return of 4.6% per year, with the same 1% fee to withdraw funds early. It lends to borrowers across all of Zopa's risk ratings of A* to E, making it a riskier product than Core.

Risk mitigation. Until June 2017, Zopa had a Safeguard fund in place on some of its products. This was a provision fund which allowed for any bad debts, meaning if someone didn't repay their loan you'd still receive your money, but it's now been withdrawn completely for new loans.

Zopa lends your money to individual borrowers, each of whom gets a risk rating, from A* to E. It diversifies your investment, spreading your cash in £10 bites among many different borrowers. The rate offered has already had both Zopa's assumed bad debts and its fee deducted, so it's already worked in an expected number of people not repaying.

If a borrower misses four months' worth of repayments, Zopa will try to collect the loan through a recovery process, though it'll initially deduct the amount unpaid from your account. If it recovers the money, it'll add it back to your account.

How quickly can you withdraw money? You get monthly repayments, which can either be paid back into your holding account, or lent out again. If you want to access a lump sum that's still being lent, you can sell on your outstanding loans for a 1% fee. It takes three to five days to get the cash.

For over three years, MoneySavingExpert.com founder Martin Lewis has been using all three big peer-to-peer lenders. Here's his experience of Zopa – though of course there are no guarantees...

Find out how Martin fared using Zopa

I've been with Zopa the longest, including before it introduced the Safeguard system. Returns before then were just over 5%, and in the relatively short time since have been 4.6% – which is what was promised.

• Current rates: 2.5% (easy access), 4.1% (1yr), 4.7% (5yr) after fees and bad debts

• Unlent cash kept in: Barclays

• Min/max lend amount: £10/unlimited

• Money lent so far: £2.29bn

• Number of lenders: 60,100

Feels most like 'normal' savings.

Ratesetter* is the Rory Bremner of crowd-lending – it's always done a good impression of normal savings accounts. You choose your account and put cash in - though remember, peer-to-peer lending isn't 'saving' in the traditional sense, and smells more like investing.

Now Zopa's moved closer to its system, it's easier to compare the two on rates. Ratesetter also allows you to instantly reinvest the interest, so you can benefit from compounding.

One advantage Ratesetter has over Zopa is it's more customisable over rate. For example, if it suggests a market rate of 5% to you – if you wanted your money to be lent out quicker you could go for 4.8%, or if you were willing to wait you could see if it'd be matched at 5.2%.

Anyone can now open an IFISA with Ratesetter, which has the same features of its non-ISA products with the benefit of any interest you earn being tax-free forever.

Risk mitigation. With Ratesetter's Provision Fund, you get a set rate at the time you put money in. You should receive this, unless there are major problems. So far, it's paid out as promised and the Provision Fund has £24.1 million in it.

It's worth noting that Ratesetter's no longer a member of trade body the Peer to Peer Finance Association, whose members sign up to pledge certain standards of conduct and protection, though it is still regulated by the FCA and one of the largest peer to peer lenders.

How quickly can you withdraw money? You can withdraw your money at any time, but may need to wait a few days for new investors to be found to take on your loans.

There's no fee to withdraw from an easy access account (called Rolling Market), but early withdrawals from the 1 year market have a 0.3% fee, and the 5 year market has a 1.5% fee.

For over three years MoneySavingExpert.com founder Martin Lewis has been using all three big peer-to-peer lenders. Here's his experience of Ratesetter – though of course there are no guarantees...

Find out how Martin fared using Ratesetter

My average has been a high 5.1%, as I put more money away for five years at 6% than the 4.9% for three years and 3.8% for one. However, the rates have dropped in recent times, so you won't get these now.

• Quoted expected return: 4.8% for Conservative and 7.2% for Balanced, after fees and bad debts (1% annually)

• Unlent cash kept in: Barclays

• Money lent so far: £3.1bn

• Min/max lend amount: £1,000/unlimited

• Number of lenders: 77,000

Highest rates – but biggest risk of bad debt

Funding Circle* is the purest peer-to-peer system and lends to businesses. The advertised rates are higher, but so are the bad debt provisions, so it's riskiest. The Government's started using it, with £80m put there to fund small businesses.

Anyone can now open an IFISA with Funding Circle, which has the same features of its non-ISA products with the benefit of any interest you earn being tax-free forever.

Risk mitigation. Funding Circle has recently overhauled its lending system. All investors now need to use the Autobid system, and you can no longer choose which businesses you lend to. Here's how it works:

Spread the risk: Its Autobid system simply spreads your money over a wide range of borrowers. So if one fails to repay, it won't hit you too badly. You can choose from two products; Balanced, which lends your money to businesses with a full range of risk ratings and; Conservative, which has a lower expected return but lends to the two lowest-risk classes of business.

For both products, no individual loan part will be larger than £100, and no more than 0.5% (min £20) of your money will be lent to a single business.

How quickly can you withdraw money? Your money's lent out over periods between six months and five years. As the loans are repaid, you receive a proportion back every month plus interest which you can choose to withdraw or reinvest.

If you want to access your money early, you can trade the debt with other investors on the secondary market. This used to have a 0.25% fee, which was removed in August 2017. Access depends on having a buyer for your debt - Funding Circle says the average time to sell is just under eight hours. There are no guarantees however with how fast you might get your money back.

Quick question

For over three years, MoneySavingExpert.com founder Martin Lewis has been using all three big peer-to-peer lenders. Here's his experience of Funding Circle – though of course, there are no guarantees...

Find out how Martin fared using Funding Circle

Since I started drip-feeding cash in, my return after all bad debt and fees has been 6.2%. I didn't pick individual borrowers, just used its Autobid. I opted for a riskier spread – my gamble has paid off, but it doesn't mean it always will.