The news just gets worse for investors with cash on deposit. We thought things were bad a couple of years ago when base rates were over 1 per cent. We then surveyed 233 Cash ISA accounts, and the results of our labours were reported by P2P Finance News.
SAVERS relying on cash ISAs are facing a “dismal and depressing” 1.03 per cent return on average, Money&Co has warned.
The peer-to-peer business lending platform surveyed 233 ISA cash accounts available to UK savers and found all fail to beat inflation.
The highest interest rate – from Charter Savings Bank – was 2.11 per cent, but requires savers to lock up their money on a five-year fixed rate.
In comparison, Money&Co says, P2P lenders are offering rates of seven per cent and more this ISA season through their Innovative Finance ISAs (IFISA).
The move was announced at the end of last week after the Bank of England slashed interest rates again from 0.25 per cent to just 0.1 per cent to help bolster the economy through the coronavirus pandemic last Thursday.
In an email sent to customers seen by AltFi, the investment platform said: “To reflect the changes to the Bank of England’s base interest rate, from 19 March 2020 we will no longer be paying interest on cash held in any Hargreaves Lansdown investment account.”
Hargreaves Lansdown is the leading investment platform for retail investors in the UK terms of assets but a number of fintech firms, as well as Goldman Sachs’ Marcus platform, have put the savings markets at the core of their growth strategies.
Historical Performance And IFISA Process Guide
That figure is the result of over £20 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.
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:
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.
Risk: Security, Access, Yield
Do 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.