DIY Investor Magazine
/
March 2017
42
GETTING MORE OUT OF YOUR ISAs
Cash ISAs fail to deliver anything more than paltry
interest rates, and in 2015/16 Stocks and Shares ISAs
performed their worst since the 2008 financial crisis;
Crowdstacker introduces the Innovative Finance ISA
- what is it, and should you consider adding it to your
portfolio?
The Innovative Finance ISA (IFISA) was introduced by
the Government at the start of the 2016/17 tax year to
enable investors to hold peer to peer loans in an ISA
wrapper.
As with other types of ISA, investors can use all, or
some, of their annual £15,240 ISA allowance to invest in
peer to peer (P2P) lending products, which may attract
people looking for better returns than cash ISAs, or
some stocks and shares ISAs, are currently offering.
P2P, or market place lenders directly match people
willing to invest or lend with people or businesses
wishing to borrow, at an agreed rate of interest; pretty
much what the banks have traditionally done by lending
out your savings.
However, rather than a bank lending the entire amount
of money, a group (hundreds or even thousands) of
individuals each directly lend a small part of it instead.
Unlike some savings products, P2P returns are not
guaranteed, but forms of security, such as first charge
over the borrowing business’s assets, are often offered.
P2P platforms can take several forms - some enable
individuals to borrow money, others businesses; loans
may be for a few months to a few years and as with
most loans, as well as repaying the principle sum at the
end of the loan term, the borrower also pays interest in
the region of 3% to 12%, depending on risk levels and
loan terms.
With interest rates like this on offer within a tax-free ISA
wrapper, it is easy to see the appeal to investors looking
for higher regular returns.
‘LEND MONEY TO HIGH QUALITY BRITISH BUSINESSES THAT
NEED MONEY TO EXPAND, DEVELOP OR DIVERSIFY’
P2P platforms must have full FCA authorisation to offer
the IFISA and currently few are able to do so; two that
have been around since launch are Crowdstacker and
Crowd2Fund.
Crowdstacker offers investors the chance to lend money
to high quality British businesses that need money to
expand, develop or diversify; borrowers are put through
a rigorous screening process which includes not only
basic credit checks but also reviews company accounts
and creates bespoke loan terms to suit the business’
needs and protect investors.
All investments on its platform can be held in the IFISA
offering returns of 5–7% according to the risk profile of
the businesses.
A measure of its attraction is shown in Crowdstacker’s
research which suggests that 90% of those investing in
an IFISA have not invested with the platform before, with
the average investment £7,700.
Other findings around its IFISA suggest that:
•
1 in 5 have invested their entire £15,240 16/17 ISA
allowance
•
It appeals to all age ranges – 20s through to
retirement
•
Monthly investment levels have remained steady
since launch
•
7% have moved money from other types of ISA
So, although the IFISA is not yet available on all
platforms, the potential for its popularity is clear. The
IFISA can create investment diversity
Because of the way the investments are structured,
crowdfunding and P2P lending can open up new
