Innovative Finance ISAs (IFISA) are a little-known type of ISA that can see competitive returns. Here’s a summary of what they are and how they use P2P lending to secure steady rates of growth:
P2P lending
P2P lending stands for peer to peer. It’s founded on a pretty straightforward idea: you lend your money to individuals or businesses using a P2P platform as a middleman. Because the interest rates on loans are considerably higher than on savings accounts, they are often an attractive option. With P2P lending, you can expect returns of between 3% and 7% depending on the account you choose.
The IFISA
Three years ago this coming April, the government introduced the IFISA. This allows consumers to invest part or all of their £20,000 ISA allowance in P2P lending. On the surface, the IFISA seems perfect. It’s a tax efficient way of achieving high returns with relatively low volatility.
However, so far the IFISA has been a bit of a damp squib.
In the 2017-2018 tax year, £290 million was invested in IFISAs, with an average of £9,355 per person. This might sound like a lot of money, but when you compare it to the £69.3 billion invested in adult ISAs the same year, it pales in comparison.
Industry surveys point the finger at a lack of awareness about the IFISA. Just 6% of Brits are aware of them. Whereas 75% were aware of traditional cash ISAs and 40% knew about stocks and shares ISAs in the same research.
Part of the issue is that P2P platforms have taken a while to bring their IFISAs to the marketplace. Almost three years after their introduction, only 36 IFISA products are available with regulatory delays cited as a reason for this slow uptake by major P2P platforms.
People who are already aware of P2P lending are far more likely to invest in IFISAs. More and more people are investing in IFISAs and it’s thought that much of this growth has been driven by existing P2P investors converting their existing accounts into IFISAs.