THE IN­NO­VA­TIVE FINANCE ISA

Sunday Express - - Your Projects Count -

THE IN­NO­VA­TIVE Finance Isa is likely to catch the eye of many hard-pressed savers by tar­get­ing rates of 6 per cent a year, and some­times even more.

It won’t be hard to see the ap­peal at a time when even the very best cash Isas are pay­ing just 1 per cent, but make sure you un­der­stand the risks.

The In­no­va­tive Finance Isa, some­times called the IFISA, was launched in April last year and ex­tends tax-free Isa ben­e­fits to on­line peer-to-peer (P2P) plat­forms. Sites such as Zopa.com, RateSet­ter.co.uk and Fund­ingCir­cle.com match or­di­nary savers with in­di­vid­u­als and small busi­nesses who want to bor­row money, cut­ting out the bank­ing mid­dle­men to get both par­ties a bet­ter rate.

So far City watch­dog the Fi­nan­cial Con­duct Au­thor­ity has only ap­proved a hand­ful of In­no­va­tive Finance Isas, but that is set to change, with more than 80 ap­pli­ca­tions in progress. Lend­ing Works was the first ma­jor plat­form to re­ceive au­tho­ri­sa­tion, and launched its In­no­va­tive Isa in Fe­bru­ary, pay­ing be­tween 3.6 per cent to 3.5 per cent over three to five years.

Crowd2Fund Loans tar­gets a tempt­ing 8.7 per cent a year, while CrowdS­tacker Loans aims for be­tween 5.43 per cent and 7 per cent.

CrowdS­tacker has at­tracted £1 mil­lion a month, with the av­er­age in­vest­ment just over £7,000, and co-founder Kar­teek Pa­tel says: “We hope aware­ness will grow as more providers in­tro­duce their IFISAs.”

An­drew Hag­ger, per­sonal finance ex­pert at MoneyComms.co.uk, says make sure you un­der­stand all the risks. “Your money is not pro­tected by the Fi­nan­cial Ser­vices Com­pen­sa­tion Scheme, which pro­tects the first £85,000 of sav­ings if your bank or build­ing so­ci­ety goes bust.”

Some plat­forms, in­clud­ing Zopa and RateSet­ter, have their own con­tin­gency funds to cover losses, but there are no guar­an­tees, Hag­ger warns. “Most sites also re­duce the risk by spread­ing your money be­tween scores of care­fully vet­ted borrowers.”

The lat­est breed of P2P “crowd­fund­ing” plat­forms ratchet up the risk a level or two by in­vest­ing in start-up busi­nesses, which have a high fail­ure rate. The riski­est “eq­uity-based” plat­forms are cur­rently not el­i­gi­ble for the In­no­va­tive Finance Isa.

You can trans­fer ex­ist­ing Isa bal­ances into an In­no­va­tive Finance Isa if you wish.

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