Compensation warning as savers and borrowers turn to peers

The Financial Services Compensation Scheme (FSCS) has warned savers that 'peer-to-peer' lending is not protected under the scheme.

As banks tighten their lending criteria and reduce interest rates, savers and borrowers have been turning to each other for financial solutions, via peer-to-peer lending companies. In the last 18 months £192 million has been switched via these 'money exchange' websites, which allow peers to lend to each other at better rates and reduced charges.

But following the failure of one such firm, Quakle, the FSCS is warning that compensation is not available. The FSCS provides protection for money held in an authorised bank, building society or credit union up to £85,000 per-person, or £170,000 for joint accounts.

Commenting, Mark Neale, chief executive of the FSCS said: "It is understandable consumers want the best rate of interest for their savings in the current climate. And peer-to-peer lending may be the right choice for some people who are looking for a return on their savings or want a competitive loan rate. It is important to remember though the FSCS does not protect the money invested though peer-to-peer lending companies."