5 Top Questions to Ask When Considering an IFISA
Forearmed is forewarned, we say. And, although it’s a bit of a cliché, information is power.
Although standard cash ISAs have been around since 1999 as an integral way to save, IFISAs (Innovative Finance ISAs) are still relatively new in the marketplace. If you’re considering this type of investment, it’s natural that you’ll have some important questions to ask any provider who may be offering you this platform.
New vs. Standard
Established in 2016/17, there are several highly reputable businesses that offer IFISAs (including easyMoney, of course). Indeed, we have a proven track record. This concept remains, well, innovative. And, can offer bigger rewards. Compared to a standard cash ISA, for example, the returns are potentially much higher – with easyMoney you could earn anywhere on average between 3.5% - 7% gross per annum.
Additionally, the interest is tax-free, following the same ISA principles.
However, they’re not covered by the Financial Services Compensation Scheme (FSCS), Likewise, this is not a cash savings account, so instant access to your funds is not guaranteed.
Here at easyMoney, there are some key questions that our would-be clients ask us on a regular basis, so we thought you’d find it useful for us to put together a straightforward “how-to” guide on how to get the information you need from any future IFISA provider you may wish to deal with.
We’re here to help you make informed decisions about your investments.
First, just a quick re-cap:
- What is an IFISA from easyMoney?
An IFISA enables you to lend money on a peer-to-peer basis within a tax-free “wrapper”.
This means that you won’t be taxed on any interest you earn, and it won’t count towards your personal savings allowance. Your annual limit is £20,000, and with easyMoney, your investment in P2P loans is backed by UK property. That is, we can “link you up” with individuals or businesses who are actively looking to borrow. A positive win-win scenario.
With us, your interest is paid monthly, and no loan has ever made a loss.
This notwithstanding, here are the top 5 things that we think you need to ask:
1. What’s the difference between IFISAs vs. regular P2P lending?
OK, that’s a good question, not least because the mechanics of the two are normally comparable. Ultimately, your money is invested in the same way, with similar rates and risks, and parallel features and benefits.
But here are the main differences:
An obvious one, but any interest you earn through an IFISA is NOT taxed, whereas non-IFISA P2P returns must be declared to HMRC.
IFISA funds can be transferred to other ISA products in future tax years without contributing to your annual ISA allowance at the time – thus you further protect your money from taxation. (Bear in mind that transfers can only be remitted in cash, so investments must be sold and matched to another investor before the proceeds can be transferred. At easyMoney, the average time to sell loans on the secondary market is under 24 hours over the past year.
2. Who Provides Innovative Finance ISAs?
IFISA providers offer you the chance to lend money to other individuals, infrastructure developments or business, and reap the reward of tax-free interest when they repay you.
In a nutshell, the most common loan types are:
Businesses. Secured or unsecured loans to companies. Rates of return can be high, but with a greater degree of risk due to the potential of loan default.
Individuals. The consumer loans market is currently stable, and P2P platforms can diversify your investment across multiple loans.
Property. Where we come in. easyMoney’s IFISA enables you to invest your money into loans secured against property.
3. How does it work? How do I open an IFISA?
We like to keep things simple, and we aim to make the process as easy as possible – hence our name. In fact, you can open an IFISA in minutes. Firstly, check that you’re eligible – are you a UK-resident taxpayer over the age of 18? OK, good.
Then, do your research and choose your provider. With easyMoney, you could benefit from an interest rate of up to 8%. Interesting interest rates, we think, but get in touch with us to discuss this in more detail.
Apply and begin investing. Through us, just click here to get everything started and we’ll take care of the rest. You can transfer all or part of your existing ISA portfolio to easyMoney.
Bear in mind that we offer flexible ISAs; in other words, you can withdraw your funds and replace them within the same tax year. In fact, you have up until midnight on the final day of the tax year to replace the money for it to remain in your ISA.
4. What are the risks?
There are risks involved with every single investment product on the market, bar none.
For consumer protection and best practice guidelines, all peer-to-peer lending platforms must have full authorisation from the Financial Conduct Authority (FCA) in order to trade. Of course, easyMoney is no exception. This important FCA approval ensures that robust protection is in place for both lenders and borrowers; there are also further regulations in place surrounding the handling of client money.
Ask questions of any future provider to put your mind at rest: how long has the IFISA platform been trading? What safeguards are in place for borrower default? Is the investment diversified across more than one borrower?
It goes without saying that as an established IFISA provider, we feel that our reputation as part of the easyGroup brand is strong. Treating our clients fairly will always be our number one priority.
5. Is an IFISA going to work for me?
Investing with easyMoney is as we say, easy. Every month will be something to look forward to, as your tax-free interest is allocated to your account. Draw this sum down to your bank account or re-invest it – the choice is yours.
However, to be more direct, we need to answer this query with another question or two if we may: what are your life goals? What’s your attitude to risk? If you want to avoid a lengthy commitment, yet potentially beat inflation and minimise your exposure to tax, an IFISA could be the right option for you.
Likewise, these sorts of ISAs offer an excellent opportunity for you to spread out your investments, adding further security and enhancing your chances of strong returns.
Just out of interest, joining the easyMoney family entitles you automatically to receive an easyMoney plus card. Invest £1,000 or more, and as a member, you could benefit from hundreds of pounds worth of savings up to 55% over 1,000 of Britain's biggest retailers.
Just something else to look forward to, courtesy of easyMoney.
e-Money Capital Ltd trading as easyMoney is authorised and regulated by the FCA (FRN 231680). Instant access to your money can’t be guaranteed. The property industry is subject to market conditions and therefore your capital is at risk. Peer-to-Peer Investments are not cash savings accounts so they are not covered by the Financial Services Compensation Scheme (FSCS). Past performance does not guarantee future results. Tax treatment is dependent on individual circumstances and subject to change.