Tesco vs ZOPA, And the winner is... Options

[MrHenderson]

With several threads discussing the merits (or otherwise) of ZOPA and the issues of return rates and bad debts, I just thought I would start another.

At the end of January I put £3k into ZOPA and £15k into Tesco Personal Finance. Today I received a statement from Tescos telling me that they have given me £120. To date I have earned £21 from ZOPA with one late payer of £20, which means that I have probably earned just £1 from ZOPA.

Now I know that I am not strictly comparing apples with apples but if I had been wiser I would have put all £18k into Tescos.

Mr. H.

[comptroller]

With several threads discussing the merits (or otherwise) of ZOPA and the issues of return rates and bad debts, I just thought I would start another.

At the end of January I put £3k into ZOPA and £15k into Tesco Personal Finance. Today I received a statement from Tescos telling me that they have given me £120. To date I have earned £21 from ZOPA with one late payer of £20, which means that I have probably earned just £1 from ZOPA.

Now I know that I am not strictly comparing apples with apples but if I had been wiser I would have put all £18k into Tescos.

Mr. H.

Except that you have "accrued interest" on c£3,000 of loans that will be credited to your account over the next month, at a nett return (after Zopa fee) of around 6%, this might amount to £10-£15, and, I hope, your late payer might not turn out to be a bad debt.

If you are saying you would have preferred the certainty of x% from Tesco against the risk of Zopa that was inadequately explained, then that is an entirely different matter

[boilerman]

With several threads discussing the merits (or otherwise) of ZOPA and the issues of return rates and bad debts, I just thought I would start another.

At the end of January I put £3k into ZOPA and £15k into Tesco Personal Finance. Today I received a statement from Tescos telling me that they have given me £120. To date I have earned £21 from ZOPA with one late payer of £20, which means that I have probably earned just £1 from ZOPA.

Now I know that I am not strictly comparing apples with apples but if I had been wiser I would have put all £18k into Tescos.

Mr. H.

Sorry to be exceedingly dense, but surely 1/5th of the Tesco interest (to scale it down to the Zopa level) is 120/5 = £24 which is surely not earth shatteringly different to the £21 you have received so far? Plus you have then presumably re-leant the £21 earned which will increase your take over the next three months.

And we all hope that the late payer will come up trumps. Mine did!



Or am I missing something???

This post has been edited by boilerman: Apr 28 2009, 09:53 AM

[sl75]

If you are saying you would have preferred the certainty of x% from Tesco against the risk of Zopa that was inadequately explained, then that is an entirely different matter

I don't think that Tesco Personal Finance falls into the category of "too big to fail", so it is possible it could "do an Icesave".

This risk is, perhaps, reflected in its higher interest rate compared to the more traditional players.

[comptroller]

I don't think that Tesco Personal Finance falls into the category of "too big to fail", so it is possible it could "do an Icesave".

This risk is, perhaps, reflected in its higher interest rate compared to the more traditional players.

For deposits of up to £50,000 it doesn't matter. If the FSCS fails it doesn't matter where your money is, it will be worthless.

From his post it appears Mr H would have had a total of £18,000 there, unless of course he has other money with Tesco.

[sl75]

For deposits of up to £50,000 it doesn't matter.

Yes it does... you lose access to your money for 3 months, and get no interest in that time.

For Icesave that more than cancelled out the slightly higher rate I'd got in the few months before they failed.


I admit it doesn't matter as much if you're depositing less than £50k, but this still matters if access to your money is important, or if the interest rate is only slightly higher than a "safer" account.

FWIW, I've got some money in Tesco too... but I wouldn't put more in that account than I could afford to lose access to for a few months.

This post has been edited by sl75: Apr 28 2009, 12:58 PM

[MrHenderson]

Sorry to be exceedingly dense, but surely 1/5th of the Tesco interest (to scale it down to the Zopa level) is 120/5 = £24 which is surely not earth shatteringly different to the £21 you have received so far? Plus you have then presumably re-leant the £21 earned which will increase your take over the next three months.

Boilerman, you are correct that £3k at Tescos has yielded £24 and the comparison to £21 at ZOPA is small beer, except that it might only be £1 with ZOPA.

I just thought it was an interesting comparison. Another advantage at Tesco is that I have immediate access to my £15,120. However, I am expecting my ZOPA money to start paying more very soon, so in the long run I hope ZOPA will outperform Tesco, providing the bad debt rate doesn't go too high.

Mr. H.

[Gorgeous George]

Now I know that I am not strictly comparing apples with apples but ...

Understatement of the week, I think.

Of course, to achieve the average bad debt, you need to be part of every loan. With relatively few loans, you are exposed to 'randomness' and your bad debt could be very little or very high or anywhere in between.


Why not compare to buying Tesco shares or lending money to a stranger in the pub?

GG

[JGraham]

At the end of January I put £3k into ZOPA and £15k into Tesco Personal Finance. Today I received a statement from Tescos telling me that they have given me £120. To date I have earned £21 from ZOPA with one late payer of £20, which means that I have probably earned just £1 from ZOPA.

Now I know that I am not strictly comparing apples with apples but if I had been wiser I would have put all £18k into Tescos.

Mr. H.

I can't help but think it is a little early to compare a saving account with Zopa. The calculation on the saving account is very simple, whereas to evaluate your Zopa investment your exposure to different markets, average interest rate and other factors need to be considered. The difference will be especially large at the beginning because unlike a savings account where interest is earnt from the moment your money reaches the bank, your Zopa money needs to be offered, accepted and then wait a month before seeing any return. Please don't take this as an attempt to prove Zopa is better, my intention is purely to point out the issue with comparing them so soon.

I started lending on Zopa later than you. My portfolio is almost entirely A* averaging 7.59% and has so far had no issues... but this could change and I think it would be unwise to compare it with other options so soon.

You say you would of been wiser to put it all in Tesco and perhaps that is true, another possibility is that Zopa was the best choice and this will show with time and another still is that you lent your money poorly on Zopa and it was this error that has cost you rather than the choice of Zopa itself. I am not saying it is any of those options, just that it might be from what I know.

[MrHenderson]

Of course, my initial posting was slightly antagonistic as I just wanted to see how many people would come to the defence of ZOPA and with what arguments.

If I had bought Tescos shares, then over the same period I would have just about broken even. If I had lent the money to a bloke in the pub, he would probably have bought me a pint for the favour, so that's £3 profit so far .

I don't think it's unreasonable to review an investment after 3 months. Companies do it and it is the bottom line which counts.

Although my initial posting was a little tongue-in-cheek, I am struggling to decide whether I should be moving more of my cash over from Tescos to ZOPA, which was my initial intention back in January. I think I will wait another 3 months before making any decisions.

Mr. H.

[sl75]

I don't think it's unreasonable to review an investment after 3 months. Companies do it and it is the bottom line which counts.

But they'd include the full value of the investment on the bottom line...

Your Zopa total does not include unpaid interest, and this is especially relevant towards the start when a large number of borrowers have not yet made their first payment, and many of those who have made a payment have nearly a month more unpaid interest already.

Look again 1 week from now, after the payments due on the 1st of the month have been credited to your account, and you'll probably notice quite a difference.


I find Tesco useful for short-term spare funds that I expect to require within a couple of months. For anything longer-term than that, there are better places to put my money.

[comptroller]

If I had bought Tescos shares, then over the same period I would have just about broken even. If I had lent the money to a bloke in the pub, he would probably have bought me a pint for the favour, so that's £3 profit so far .
Mr. H.

If you had bought Tesco shares on 30 January in the "closing auction" you would have paid £3.582 per share plus 0.5% stamp duty and dealing costs, say £3.605. As I type you could sell them for £3.373 so, on the face of it a loss of c.23p, although you would also have received entitlement to a dividend payment of 8.39p basic rate paid, reducing the loss to about 10p a share, on an investment of £3,000 to start with a nett loss of about £80. Not that you should ever compare direct equity investment with lending money in Zopa, unless you believe Zopa is as volatile as the stock market

[Change]

If you had bought Tesco shares on 30 January in the "closing auction" you would have paid £3.582 per share plus 0.5% stamp duty and dealing costs, say £3.605. As I type you could sell them for £3.373 so, on the face of it a loss of c.23p, although you would also have received entitlement to a dividend payment of 8.39p basic rate paid, reducing the loss to about 10p a share, on an investment of £3,000 to start with a nett loss of about £80. Not that you should ever compare direct equity investment with lending money in Zopa, unless you believe Zopa is as volatile as the stock market

...or over such a short period for both

[comptroller]

...or over such a short period for both

Yes, I meant to say that.

Comparison of the performance of different types of investment, whether FSCS guaranteed, other deposits, collective investments (eg Unit Trust) direct equities (eg Tesco shares) is of course valid over longer period of time and will validate, or otherwise, the risk profile of the individual investor. But to try and do such comparisons of three months has a high risk of producing inaccurate reslult because of short-term volatility.

[big jeff the tic...]

Of course, my initial posting was slightly antagonistic as I just wanted to see how many people would come to the defence of ZOPA and with what arguments.

If I had bought Tescos shares, then over the same period I would have just about broken even. If I had lent the money to a bloke in the pub, he would probably have bought me a pint for the favour, so that's £3 profit so far .

I don't think it's unreasonable to review an investment after 3 months. Companies do it and it is the bottom line which counts.

Although my initial posting was a little tongue-in-cheek, I am struggling to decide whether I should be moving more of my cash over from Tescos to ZOPA, which was my initial intention back in January. I think I will wait another 3 months before making any decisions.

Mr. H.

[Pedlarjak]

DONT KNOCK GIVING A MAN IN A PUB A LOAN.
A SMALL ADVERTISEMENT IN A CORNER SHOP WILL BRING YOU CUSTOMERS FOR SMALL CASH LOANS.
BECOME A LICENSED HOME COLLECTED CREDIT LENDER.

Small Advertisement in a corner shop. Must be good - after all, it is the lifeblood of the oldest profession in the world!

[song]

Of course, my initial posting was slightly antagonistic as I just wanted to see how many people would come to the defence of ZOPA and with what argume

Like your reason for posting; they certainly bite.

[chancer]

It would be better if Zopa could report interest accrued but not yet received

[itsbruce]

It would be better if Zopa could report interest accrued but not yet received

It's not income until you receive it; in contrast, you're definitely going to pay the fee.