A whole generation of investors have grown up with Individual Savings Accounts (ISAs), now firmly established on the UK investment scene.
ISAs have earned and retained a position of popularity because they offer such attractive tax benefits, but also because the government has adapted them and expanded the offer according to developments in the investment environment.
One of the latest additions to the ISA family is the Innovative Finance ISA (IFISA).
The IFISA allows you to use some, or all, of your annual ISA allowance to lend funds through the peer-to-peer (P2P) lending market and buy other debt-based securities, getting the usual ISA benefits of tax free interest and tax free capital gains.
IFISAs will typically pay a higher rate of return than Cash ISAs, but lower than Stocks and Shares ISAs. This can make them a valuable addition to a diversified investment portfolio.
The projected rates of return from IFISAs range from 3% per year to 15% and vary in terms of risk.
Even though IFISAs are relatively new, there’s already a wide variety of types of provider.
The main funded IFISAs include;
- Green energy
- SME lending
- Consumer lending
So, how do you go about choosing the best IFISA provider?
First, decide what kind of IFISA you need. You must be clear on how much risk you want to take with your investments - balancing your need for security with your desire for returns.
You also need to weigh up;
- Your investment ambitions and goals
- Whether you need a fixed income
- Whether you need easy access to your funds
- Whether you want to be actively involved in the management of your investment
Once you have these answers clear in your mind, you should undertake thorough research - and ideally commission an independent financial advisor - to find out which IFISA providers are offering products that most closely match your requirements.
When researching IFISA providers, ask yourself;
- Do they have an online platform where you can view the progress of individual investments?
- Have they been established long and have they featured in the media?
- Do they have a track record in managing the kind of investment you’re considering?
You should also consider what's affordable for you, as all providers have a minimum investment allowance, as well as what you can afford to lose, because the type of sector where the investments are made could influence the risk or likely returns.
It’s important to remember that the best IFISA provider for someone else, may not be the best IFISA provider for you. You must understand both the sector you are investing into, and how your capital will be used to generate returns. However, two things remain constant - you must do your research and take (professional) advice.
Your capital is at risk. MAVEN Bonds are asset-backed but an economic downturn could affect returns and you may not get back the amount invested. In the event of default the security held doesn't guarantee the return of your capital. Enforcing your security may take time and your returns may be delayed. Investment is not covered by the Financial Services Compensation Scheme (FSCS).