A note from Zopa shares the fact that UK investors placed over £290 million into the relatively new Innovative Finance ISA or IFISA. The amount put in IFISAs by investors reached £290 million during the 2017/18 tax year, which is pegged at 8 times more than the 2016 / 17 figure of £36 million. The number of IFISAs opened in 2017-18 grew to 31,000 up from just 5,000 account openings in the 2016-17 tax year.
The IFISAs are typically pitched as an alternative to holding funds in cash or other low interest rate return vehicles. While all investments maintain a degree of risk, IFISAs are positioned to have a superior risk / reward profile thus representing a compelling alternative to cash funds.
Zopa says the HMRC ISA figures show “viability and success of peer-to-peer lending as an alternative asset class.”
Since the launch of its IFISA products in June 2017, Zopa reports it has over £150 million in its ISA products. Zopa’s IFISA currently offers target returns of 4.0% in ISA Core and 4.6% in ISA Plus.
Meanwhile, as interest rises in IFISAs, the overall popularity has been tanking as interest stands at the lowest level in 18 years. This is due, in part, to the low interest rate returns from cash options. According to HMRC he average one-year fixed rate ISA interest rate stood at a paltry 1.22% return in June 2018.
In January this year, Zopa says it started accepting transfers-in of ISAs from other providers, with 50% of new customer funding since then being invested in a Zopa ISA.
“These figures are further evidence of that fact that people want a reliable alternative to lower return cash savings products or the volatility associated with investing on the stock market,” explains Natasha Wear, Head of Investment Products at Zopa. “Investing in loans through a robust peer-to-peer platform can be a great middle ground, especially when the returns are tax free as with the IFISA.”