In the toolkit of any successful investor you will find an effective use of ISAs. The newest addition to the category, the Innovative Finance ISA (IFISA), has provided an alternative option for those looking to find some of the best ISA rates by putting their ISA money to work.
Unlike the stocks & shares ISA, the IFISA allows you to invest in peer-to-peer lending (P2P), all while receiving the same tax advantages that you can get with a cash ISA or stocks & shares ISA (although these are of course subject to an individuals’ specific circumstances, and could change in future).
Getting innovative with your ISA
P2P platforms connect investors with borrowers, allowing you to effectively lend your money (to individuals, companies, or property borrowers) and earn interest for doing so. In a low returns environment for many asset classes, P2P lending can offer a relatively stable option and a healthy return.
That said, like any other investment, it carries its own risks which need to be weighed against the opportunity for a return. Unlike a traditional savings account, any investment places your capital at risk – meaning it’s possible you’ll get back less than you put in. Also, peer-to-peer investing is not covered by the Financial Services Compensation Scheme.
Who offers an IFISA?
There’s an array of IFISA providers now on the market, meaning you can choose to lend to individuals and businesses, or invest in loans secured on property.
Transfer your existing ISA into an Innovative Finance ISA
Many IFISA providers are making it possible to transfer any ISAs you own from previous tax years into an innovative finance ISA. This works differently depending on the type of ISA you’re transferring and the provider, however there’s no limit on the amount of money in existing ISAs that you can transfer. Click here for more information on ISA transfers.
Is the IFISA is right for me?
Different P2P platforms come with different rates of return, and their own levels of risk. So, the best IFISA for any individual will depend on their own circumstances: how much they want to invest, for how long, and with how much risk attached.
One thing to bear in mind is that you can only open and contribute to one IFISA each tax year. However, your annual £20,000 ISA allowance for the 2018/19 financial year can be spread across as many different types of ISA as you like – so there’s no need to put all your investment eggs in one basket.