CHOOSING WHERE TO place your ISA allowance each year can be tough. A cash ISA provides a defined rate of interest but the best returns are typically below inflation.In contrast, investors can aim for higher returns by investing in the stock market with a stocks and shares ISA.But this brings stock market volatility and the risk of losing your money, alongside fees for the investment wrapper and for a financial adviser, if one is used.What if you could combine that fixed rate of interest with a little extra risk? Enter the Innovative Finance ISA (IFISA).The IFISA lets investors earn their peer-to-peer loan interest tax-free. Returns range from 3.54 per cent with Landbay or 4.5 per cent with Zopa to double figures with platforms such as LandlordInvest, Proplend and Ablrate.In contrast, the best rate on a cash ISA comes in at around two per cent."It may be tempting to open a basic cash savings ISA, but some savings goals are for the longer-term, so instead consumers may wish to consider investing differently," explains Rachel Springall, personal finance expert at comparison website Moneyfacts."IFISAs allow savers to invest using P2P, so for those frustrated with low returns on cash ISAs, these could be an enticing alternative."Savers will still earn tax-free interest thanks to the ISA wrapper, but it is worth remembering that capital is at risk and they are effectively lending out their cash via P2P for an interest return."
A Process Guide To Innovative Finance ISA InvestmentAll loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (ISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.So here's our guide to the process:
Risk: Security, Access, YieldDo consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here's one of several earlier articles on security, access and yield.