If your thoughts wandered to your savings while reclining on the sun lounger this summer, it’s entirely possible, given how poor returns on savings accounts and cash ISAs have been for, well, years now, that you had the thought: “I really need to start investing”.
Savers have had a torrid time since the financial crisis. With interest rates still very low despite an increase of 0.25 per cent from the Bank of England last month, it is untenable for savers to hold Cash ISAs, as returns are lower than the current rate of inflation.
So if you are a saver, it might be time to start to think a little more like an investor, to stand a better chance of being able to safeguard your future. Part of this shift might involve investing in something called an “IFISA” – short for Innovative Finance ISA. The IFISA allows people not only to benefit from higher tax-free returns but also gain further from compounding interest growth over time. Interested? Find out how it could fit into your savings and investments portfolio – whether that’s one you fancy starting or an existing one – here.
Crowd2Fund was one of the first platforms to introduce the IFISA. We’ve listed our top tips to help savers maximise their tax-free allowance, while also supporting the growth of British businesses.
The £20,000 ISA allowance has to be used up in full by 5 April. It is not possible to retrospectively use this once the tax year has ended. In order to get the full benefits of both tax saved and future growth, investors should check to see whether they have used their allowance for this tax year in full, and if not consider whether doing so fits in with their investment strategy.
With the best performing easy access cash ISAs now generating barely more than 1%, and a volatile stock market making Stocks and Shares ISAs look risky, you could consider transferring existing ISAs into the IFISA. It shouldn’t take more than a couple of weeks for funds to be fully transferred, and doing so this way means they will remain within their tax wrapper. The Crowd2Fund IFISA generates an average APR, before fees and bad debts, of 8.7 per cent – meaning a fully invested £20,000 allowance would yield £1,740, compared with £200 from a 1 per cent cash ISA.
Take the time to reduce the chance of losses by spreading funds across a range of different investment opportunities to match your investment goals and risk appetite. From a diversification perspective, it is generally good practice to invest in a variety of different industries and companies. For example; if you are more risk averse you may have a preference for lending to opportunities which are securitised with property.
Every quarter, review the performance of your portfolio to assess whether it has performed in line with your expectations and risk appetite. If you have not reached your desired overall return from interest, you may want to consider deploying a greater concentration of funds into higher risk, higher return campaigns. A simple way to track performance is with an Excel sheet which forecasts your expected annual return, and breaks this down quarterly. This can then be updated with actual performance as a comparison.
Loan terms can be a few years. If you have been investing on a lending platform already, you might be receiving monthly repayments made up of interest and capital. If these investments are made within the IFISA wrapper, you can still invest them into qualifying IFISA campaigns without losing the tax benefits. Take the time to log into your account to check whether funds need to be deployed into new investments to maximise returns.
Trading P2P investments on a secondary market can be a useful way to diversify your portfolio and pick investments better tailored to your overall strategy. You may wish to pick opportunities in sectors in which you have a specific interest or expertise, or sell primary IFISA investments to buyers and bank a profit. To maximise returns these funds can then be redeployed back into your IFISA.
There are currently two different types of IFISAs on the market: one which allows investors to directly choose the individual businesses they lend to and the other which operates a pooled investment approach. The majority of investments made on Crowd2Fund are facilitated by investors directly choosing the companies they lend to however, it is also possible to take a passive investment approach to the IFISA. Our Smart-Invest tool allows IFISA users to define their investment criteria, and savings plans. Smart-Invest will then automatically invest funds into opportunities which match this.
Chris Hancock is chief executive of Crowd2fund.