Written by Ben Cossor • Published 21st March 2019 • 4 minute read
While you’re working in the office, shouldn’t your money be working as much as you are? Savings accounts offer savers very little in terms of interest. Cash ISAs are a great way to start but still only offer savers up to 1.5%. Innovative Finance ISAs (or IFISAs) are a great way to make your money work harder for you.
The IFISA came into effect on 6th April 2016, giving UK savers both an alternative asset class and a new way of diversifying their investments. The inclusion of peer to peer (P2P) lending and property investments offered a higher income alternative to Cash ISAs at a time of persistently low interest, without the fluctuating capital values of stocks and shares.
With all these platforms the normal ISA rules apply. You can invest £20,000 per annum tax-free across your portfolio of ISAs. So, you could invest £5,000 in a cash ISA, £5,000 in stocks and shares ISA and £10,000 in an IFISA or any other variation so long as, combined, your tax-free ISA savings in the 2019/20 tax year don’t exceed £20,000.
Below are some of the hottest Innovative Finance ISAs (IFISA) that can push your savings to work harder when the new financial year begins on 6th April.
Crowd2Fund is a peer-to-peer lender which earns investors an estimated 8.7% APR return on their investments. It does this by investing your money in small, high-growth companies looking for cash injections to expand. So, you can save and make money all while supporting great businesses of your choosing or use their Smart-Invest tool to have your funds invested automatically. You can also access your capital by selling shares to others on the Exchange, unlike some IFISA providers who lock you in for a fixed term.
Recently named in the Financial Times FT 1000 of the fastest growing companies in Europe, RateSetter is one of the most exciting IFISAs in the marketplace. With over 600,000 customers so far, over £170 million has already been invested through RateSetter’s IFISA. Giving you better returns than a Cash ISA and less complex than Stocks and Shares, RateSetter lets you invest in a portfolio of loans and households and businesses. Choose between the Rolling Market and receive 3.1%, or the 1 Year Market at 4.9%, or 6% for their 5 Year Market. Investments start from just £10, so ideal for those looking to start out investing, and the due diligence carried out by RateSetter ensures borrowers are creditworthy and keep up their regular monthly payments.
With a minimum deposit of just £100, Kuflink offers a great range of IFISAs with three investment terms: 1, 3, or 5 years, and offers returns ranging from 5% to 7%. Crucially, there are no platform or investment fees unlike many IFISAs and stocks and share ISAs. It’s free to open to a Kuflink ISA so there really are no fees to pay and you can start saving and earning straight away. With the Kuflink IFISA you’ll be lending to a diverse range of businesses, all of which are secured against UK property.
With no losses to date, a reserve fund for security and an innovative co-investment strategy, Kuflink seems like a safe bet for a younger IFISA provider but with no secondary market or early exit, you are locked in for however long the term is, but the low barrier to entry and attractive returns makes it great for many first-time investors.
Founded in 2014, Property Crowd, offers people the opportunity to invest in ‘institutional grade’ property deals. These consist of UK property-backed bonds, mainly senior and mezzanine tranches which may be quite daunting to the first-time investor. However, with great transparency and robust risk management the expected returns of between 8% and 13% are tempting for any would-be investor. The minimum investment of £800 may put some people off and the 0.95% annual admin fee on the ISA account is more than some others, but it offers attractive yields and its slick, user-friendly online dashboard gives investors real-time access to data and comprehensive documentation on each property.
The PropLend team have over 80 years of combined commercial property experience so you are in safe hands. Like Property Crowd, the minimum investment is quite high at £1,000. It lets you invest in commercial property-secured loans and Proplend claims investors can expect an average annualised return of between 5% and 12% tax-free within their ISA options, of which there are three to choose from.
A big advantage that PropLend has is its level of security. Its base products, Tranche A, are secured by assets which are twice the size of the loan and borrowers are expected to make three to six months of loan payments in advance. Proplend only lends to experienced landlords and with a lot of due diligence to protect investors. Like other IFISA providers, you get the opportunity to choose which tranche you would like to invest in based on your own risk levels. The company has experienced no arrears over 45 days, defaults, or investor losses since its conception in 2014 which should put investors’ minds at rest.
So that rounds up our IFISA snapshot. Remember, with all these IFISAs, your capital is at risk, investments can go down as well as up and you may get back less than you put in, so, do make sure that you are aware of the risks and plan for your own affordability.
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