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How Much Richer We Got in 2014
If you lent your money for five years in 2014, you probably got richer.
If you started lending for fives in the safer, lower-rate P2P lending companies last year, you should have made at least 4% and it wouldn't have been much trouble to make around 5.5% just as safely.
This means that you should see an extra £40 to £55 in your peer-to-peer lending accounts per £1,000 you lent last year.
A big dent from taxes and rising prices
However, to get richer, you have to earn interest that is higher than prices rises in the shops, forecourts and everywhere else that you buy goods and services.
On average, prices rose 1% in 2014.
And then you still have to deduct the income taxes you owe on your the interest.
Here's how much richer you got after fees, bad debts and taxes, and after allowing for rising prices:
- Non-taxpayer: 3%-4.5% richer. That's a real terms increase of £30-£45 for each £1,000 you lent.
- 20% taxpayer: 2.4%-3.6% richer. That's a real terms increase of £24-£36 per £1,000.
- 40% taxpayer: 1.8%-2.7% richer. A real increase of £18-£27 per £1,000.
- 45% taxpayer: 1.65%-2.48% richer. A real increase of £16.50-£24.80 per £1,000.
Overall, that's another satisfactory year. There are not many investments where you can generally expect to grow your wealth over the long run, but peer-to-peer lending has done it again.
Just as banks have always been able to make money when they lend conservatively (unlike the crazy lending up to 2008) we can expect to make money most years too.
How do we measure rising prices?
The news reports generally focus on the Consumer Prices Index from the Office for National Statistics, which is up 0.5% in the past year.
The Consumer Prices Index is normally the lowest measure of inflation. It is used by the government; for example to calculate changes to benefits and state pensions.
However, the most accurate measure is probably the “RPIJ”, which is an updated version of the Retail Prices Index. That's what we use, which is why we say prices are up 1%.
This is just an average. If you don't use a car or other oil-powered transport, your personal inflation rate was probably higher. However, it will probably average out better in the long run.