‘How highrisk are peerto-peer Isas?’

I have seen adverts everywhere about the “Innovative Finance Isa” and they all seem to offer really high interest rates.

I am planning to start saving to buy a second home. Is this a safe way for me to invest towards it?

The “Innovative Finance Isa”, also known as the Ifisa or peer-to-peer Isa, is relatively new, as it has only been around since April 2016.

It is a third type of Isa, acting differently to the cash Isa and the stocks and shares Isa in that it allows savers to benefit from tax-free interest while investing in peer-topeer lending. This works by lending your money to businesses that need to borrow. These companies typically turn to peer-to-peer lenders if they can’t borrow from a traditional bank.

You want to save money for your second home, so if you are looking to make a quick buck, then this might look enticing, but there are several things you need to be aware of before you dive in.

There have been highprofile problems with some peer-to-peer lenders over recent years, and the City watchdog, the Financial Conduct Authority (FCA), has had to crack down on the new Isa. This should flash as a warning if you are looking to entrust a big chunk of your savings to them. Many peer-to-peer investors have struggled to cash their money back out from some peer-topeer companies and others have closed business to retail customers.

However, that’s not to say it’s not for you. Income is tax-free and investors can funnel in up to £20,000 each year. With those higher interest rates, you could grow your account at a faster pace, but beware of the risk you take. If you do decide to invest, you should be sure you are not committing too much of your money. Your investment is not equivalent to cash, so remember that it might take a long time to get your money back.