The Hidden Cost of Idle Money
Cash Drag Explained
Your money can't earn returns if it's sitting uninvested. Learn how cash drag silently erodes your P2P returns and what you can do about it.
What is Cash Drag?
Cash drag is the reduction in your portfolio's overall return caused by uninvested cash sitting idle in your P2P account. While your invested loans earn interest, any uninvested balance earns nothing — dragging down your total performance.
Think of cash drag like an airplane sitting on the tarmac. The plane isn't losing value, but every hour it's not flying is revenue lost forever.
Invisible Performance Killer
Cash drag doesn't appear in platform-reported returns. Platforms only show the interest rate on invested loans, not your account's true performance.
Compounds Over Time
Every day cash sits uninvested, you miss out on interest — and the compound growth that interest would have generated.
Captured by XIRR
Your real XIRR reflects cash drag because it calculates returns on your entire account balance, not just invested portions.
The Real Cost of Cash Drag
Let's see exactly how cash drag affects your returns with a concrete example.
Platform Interest Rate
12%
Cash Drag
10%
(Invested Portion: 90%)
Your Actual Return
10.8%
Lost Returns
1.2%
Key Takeaway
Every 10% of uninvested cash costs you roughly 10% of your interest income. With a 12% platform rate and 10% cash drag, you're effectively earning only 10.8% — a 1.2 percentage point loss that won't show up in your platform's reported returns.
Why Cash Drag Happens
Understanding the causes helps you take targeted action to minimize idle cash in your accounts.
Loan Repayments Accumulate
As borrowers make principal and interest payments, cash builds up in your account faster than it can be reinvested.
Auto-Invest Limitations
Your auto-invest criteria may be too strict, or there's a delay between cash becoming available and new investments being made.
Platform Supply Shortages
Sometimes investor demand exceeds available loans. When platforms run out of loans matching your criteria, cash sits idle.
Secondary Market Activity
Selling loans on the secondary market creates immediate cash that may take time to reinvest.
High Minimum Investments
Platforms with high minimums (e.g., €1,000+) mean small cash amounts can't be reinvested until they accumulate.
How to Minimize Cash Drag
Practical strategies to keep your money working for you.
Configure Smart Auto-Invest
High ImpactSet up auto-invest with reasonable criteria. Avoid being too restrictive — slightly broader filters mean faster deployment of cash.
Diversify Across Platforms
High ImpactIf one platform has loan shortages, others may have plenty. Spreading investments reduces the risk of idle cash due to supply issues.
Monitor Accounts Regularly
Moderate ImpactCheck your accounts 2-3 times per month. Manually invest any cash that auto-invest hasn't picked up.
Match Platform to Investment Size
Moderate ImpactFor smaller portfolios, prefer platforms with low minimum investments (€10-50) to keep cash continuously deployed.
Consider Cash Interest Options
Moderate ImpactSome platforms offer interest on uninvested cash (e.g., Mintos offers around 3%). This doesn't eliminate cash drag, but reduces its impact.
Pro Tip
Cash drag isn't always bad. A small cash buffer provides liquidity for unexpected opportunities or withdrawals. The goal is to minimize unnecessary idle cash, not eliminate it entirely.
Understanding the Full Picture
Cash drag is just one factor affecting your real returns. Learn how it connects to other important P2P concepts.
Track Your Cash Drag
P2P Dash automatically calculates your cash drag across all platforms, showing you exactly how much idle money is costing you — and which platforms deploy your capital most efficiently.