IFISAs and Stocks and Shares ISAs are both investment products, but there are some significant differences between the two.
IFISA vs Stocks and Shares ISA
IFISAs and Stocks and Shares ISAs are both investment products, but they differ significantly. IFISAs were introduced in April 2016 and they allow investors to invest in debt-based securities and lend funds through the P2P lending market without paying tax on interest or capital gains. Stocks and Shares ISAs enable investors to put money into a range of investments, including unit trusts, investment trusts and individual stocks and shares.
If you’re 18 or over, you’re eligible to open both an IFISA and a Stocks and Shares ISA. But when it comes to suitability, and deciding which would be the best option for you, it’s important to look at the risks of both (which are covered in more detail below). IFISAs sit at the mid/high risk end of the spectrum, while Stocks and Shares ISAs are at the higher risk end.
Both an IFISA and a Stocks and Shares ISA can help form part of a well diversified portfolio, but you should be sure that you’re well versed with the risks, and that the ISA you choose is matched to your risk profile. It’s always a good idea to talk to an independent financial advisor when deciding which investment product is the best choice for you.
Both IFISAs and Stocks and Shares ISAs offer higher potential returns than a Cash ISA, but because they are investment products, your capital is at risk. It’s a widely accepted fact that the higher the potential returns, the higher the risk - and this is the case with both IFISAs and Stocks and Shares ISAs. Stocks and Shares ISAs often offer higher potential returns than an IFISA, but with increased volatility.
Risk vs return
In regards to risks, IFISAs are best placed at the mid/high risk end of the spectrum, while Stocks and Shares ISAs sit at the higher risk end. They’re both investment products - unlike a Cash ISA, which is a deposit product - so you’re capital is at risk, and returns are not guaranteed.
IFISAs are not covered by the Financial Services Compensation Scheme (FSCS), but Stocks and Shares ISAs are - for up to £50,000 if the firm holding your money goes bust. It’s important to note that the FSCS protection for Stocks and Shares ISAs does not cover investment losses caused by poor performance though.
The stock market has its ups, but also its downs, meaning the value of your investments could fall as well as rise. An IFISA on the other hand is not subject to the fluctuations of the stock market, but there is still the risk that a borrower could default on their loans, and you could fail to get back the funds you invested.