INNOVATIVE FINANCE ISAS
THE IFISA, as it is also called, offers eye-catching returns ranging from 4 to more than 10 per cent, which you get from lending your money to people or businesses. This allows you to invest in the expanding peer-to-peer (P2P) lending market, while taking your returns free of tax through your Isa wrapper.
Neil Faulkner, co-founder and managing director of 4thWay, which rates the 30 or so products on the market, says savers must understand the added risk involved. “You need to treat this as an investment rather than a savings account, because your capital is not guaranteed and neither is the interest rate.”
Every Innovative Finance Isa is different, so you have to understand exactly what you are getting.
“Do not invest if you have any doubts at all about the investment opportunity or the people running it,” he adds. While pioneers Zopa and Ratesetter will lend your money to individuals, the majority of these so-called “crowdlending” sites lend to small and growing businesses, or property owners and developers.
Faulkner recommends looking for simple types of lending you understand. “Beginners should also stick to reputable platforms that have a bit of history behind them, are very open about their interest rates, and have a record of low bad debts or successful bad debt recovery.”
Also, look at how many loans the site has completed and whether it offers protection, such as a reserve fund to cover any losses. Platforms must be regulated by City watchdog the Financial Conduct Authority but you have no protection under the Financial Services Compensation Scheme, which covers the first £85,000 of traditional cash savings.
4thway has performed stress tests on a number of offerings and has named residential buy-to-let lender Landbay, which aims to pay 3.54 per cent, and personal loan specialist Lending Works which targets 6 per cent, as two of the lowest risks. Faulkner also rates Proplend, which offers property loans to commercial and residential landlords and aims for 7.33 per cent, and another property lender HNW Lending, which targets 7 per cent.
Landbay founder John Goodall says the Innovative Finance Isa can help savers get inflation-beating return free of tax, and allows investors to access property market growth with small sums of money. “Property is expensive and hard to access for a growing number of people.”
Nicola Horlick, founder of new offering Money&Co, which offers an average return of 8.6 per cent, says you can reinvest the yield for further growth, or take it as monthly income. “It is an exciting area because you can personally choose which companies you want to put your money in, and the level of risk you are willing to accept.”
You can spread your money between Cash Isas and Stocks and Shares Isas as well, so long as you do not exceed your overall £20,000 allowance.