The Daily Express offers a good review of the rewards and the risks of Innovative Finance Individual Savings Accounts (ISAs). Money&Co. is very active in this sector, and the newspaper quotes CEO Nicola Horlick, who says our 7 per cent target-yield Innovative Finance ISA "offers savers relief after years of near zero interest rates.
"You have the freedom and flexibility to choose exactly which companies you want to put your money into, adjusted to match your own personal attitude to risk," she adds.
Some sites allow you to invest from as little as £10, which allows to get a feel for the sector without putting too much of your money at risk, others set a higher minimum of £1,000.
You can invest your full £20,000 Isa allowance if you like, and even transfer underperforming Isas from previous years.
You can only take out one Ifisa each year, but you can also invest in cash and stocks and shares Isas as well.
This is an entirely new area, and undoubtedly an exciting one.
The interest rates are hugely tempting but, before you decide it's for you, just make sure you understand all of the risks.
We have a new loan offering on the Money&Co. site, from webuyanyhome.com. This is a three-year, property-backed loan, rated A+. It offers a fixed-rate yield of 8 per cent, gross. That will translate into 7 per cent, net of our fee. If you decide to lend the full £20,000 via an Innovative Finance ISA... see below for the process and the way the figures play out.
The ISA allowance for 2017/18 is £20,000 per person. If you do not have a Money&Co. ISA, please consider opening one. It takes a few minutes to fill in the application form online. If you hold loans in an ISA wrapper, you will receive the interest completely tax-free. Money&Co.'s registered lenders have achieved an average return of over 7 per cent (net of our one per cent fee) in over three and a half years. That translates into a tax-free income of over £1,400 per annum for those taking advantage of the full allowance.
A Process Guide To Innovative Finance ISA Investment
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 2018/19 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 an earlier article on security, access and yield.
It's relatively easy to logon to our site and register to become a lender. But if that's all too new-fangled, you can call us on 020 3143 4004 or write to Money&Co., 58 Glentham Road, London SW13 9JJ. We'll then send you an ISA Brochure, and ISA Transfer Authority form (if you want to transfer monies from a Cash ISA) and a Freepost envelope. Then it's just a question of following your nose to get that income...