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First up, IFISA stands for Innovative Finance ISA (Individual Savings Account). They are a newer, alternative type of ISA that was introduced in April 2016. They offer another choice to more traditional Cash ISAs and Stocks and Shares ISAs and provide access to a slightly different market.
How do IFISAs work?
The way IFISAs work is by lending your money to borrowers in exchange for an interest rate. Sometimes called peer to peer lending, you will be providing loans to businesses or individuals in a similar way to banks.
When you invest, you will be matched with individual borrowers and they will make payments back to you with that additional interest payment.
Who is providing these services?
In the UK, RateSetter is leading the way in peer to peer lending. Created in 2010, by two guys who wanted to fill the gap between low-risk, but low return cash savings and the more volatile stocks and shares market.
With 9 years of experience in this market, and with a 100% track record (although past performance is not an indicator of future results) to ensure investors receive a positive return on their investment, RateSetter is definitely worthy of your consideration.
Why choose an IFISA over an Everyday account?
Nine years ago, when RateSetter was first launched, IFISAs didn’t exist. This meant that you could invest your money with them but you would have to pay tax on any returns. This is the Everyday account.
Then, in 2016, the UK Government launched the IFISAs which allows you to invest all or part of your ISA allowance (currently £20,000 for the tax year 2019/20) into peer-to-peer lending tax-free.
Ultimately, investing through an IFISA over RateSetter’s Everyday account means that you get more of your money back.
[Please note that tax treatment depends on individual circumstances and may be subject to change in the future.]
What is the risk?
With any investment, there is a level of risk. But luckily, RateSetter has gone some way to reassure you that your money is safe. They have a Protection Fund, which is what has allowed them to ensure their 100% track record. They are also fully regulated and authorised by the Financial Conduct Authority (FCA). Regardless, your capital is at risk.
How quickly could I get my money back and what would it cost me?
Under the IFISA umbrella, RateSetter offers three markets for you to invest in:
- Access – has fee-free access meaning that you can request access to your money whenever you like at no cost. The average interest rate for May 2019 was 3.0%.
- Plus – this service gets an annualised rate of 4.%, but there is a release fee of 30 days of interest.
- Max – like the Plus but a greater rate of 5.0% and a 90 days of interest release fee.
As you can see, the longer that you invest your money the greater your potential return. But if you need to access your money in that time it is going to cost you.
Given the nature of the product, access to your money is linked to borrower repayments. However, RateSetter states that if you need to get to the money sooner the average time to release it has been 24 hours.
Why should you consider investing in a RateSetter IFISA?
Diversification is important in the management of money. I believe that we should spread it out as much as possible to avoid exposing ourselves too much in one area.
If you have money in a cash ISA and some in a Stocks and Shares ISA, then it makes sense to consider an IFISA to plug the gap in the middle.
With nine years of experience and a 100% track record, it is a financial product that is worthy of further investigation.
If you need further motivation, then RateSetter is offering a new investor bonus of £20 when £10 is invested. So, that gives you an extra £20 to try out peer-to-peer lending with.
What else do you want to know?
If you still have some questions or are unsure what to do next, then please leave a comment below or message me through my social media channels and I’d be more than happy to help you. Please note that other terms do apply.
This post has been written in collaboration with RateSetter.
Disclaimer: Remember the information you read here does not represent advice. Any ideas or suggestions are just that and may not work for you. Read the full disclaimer here.