Cash ISAs - Depressing, Dismal - Or Daylight Robbery?
Our objective was to calculate the average return on Cash ISAs. Bear in mind that the current rate of retail price inflation in the UK stands at 3 per cent. The average Cash ISA yield came out at... 1.03 per cent.
Money&Co. looked at 233 ISA-investable cash accounts. The highest-yielding account required cash to be locked up for five years at a rate of 2.11 per cent. See a spread sheet of the top ten accounts, below.
Little has changed among the product offerings since then. The number of providers is down by one, to 232 (see below) and base rates have risen by 0.25 per cent. But the question we asked earlier remains the same: are returns, depressing and dismal – or do they amount to daylight robbery?The horror of it all only increases with the news from Moneyfacts, as reported by P2P Finance News, that some Cash ISA providers are blocking transfers out to non-cash ISAs, including Innovative Finance ISAs. Below is an extract from the report.
INVESTORS are being prevented from transferring money from investment ISAs into some cash ISAs, with experts warning that this could result in them taking unwanted risks.Analysis from Moneyfacts shows that there are 55 fixed-rate cash ISA products, out of 232 on the market, that will not allow transfers from stocks and shares ISAs, up from 38 in 2017. This restriction typically applies to Innovative Finance ISAs (IFISAs) as well.
Average 8% Returns Plus Bad Debt Rates
Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee).
That figure is the result of over £17 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders' capital is at risk. Read warnings on site before committing capital.
Money&Co. has been lending for over 5 years and has only had one bad debt so far, representing a bad debt rate of 0.04 per cent per annum.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), 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:
Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
Step 3: Buy loans in the loan market. Once you've put cash in your account it will sit there - and it won't earn interest until you've bought a piece of a loan. It's this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans - all loans on the Money&Co. site can be held in an IFISA - and your money will start earning tax-free interest.
The ISA allowance for 2019/20 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We're assuming a 7 per cent return, net of charges and free of tax here.Once you have made your initial commitment, you might then consider diversifying - buying a spread of loans. To do this, you can go into the "loans for sale" market. All loans bought in this market also qualify for IFISA tax benefits.