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Finding your IFISA sweet spot

Posted on: 22 March 2019 by James Hester

Finding your IFISA sweet spot can help you get a balanced rate of return for moderate risk. Here's how an Innovative Finance ISA (IFISA) can help you bypass stodgy, under-performing ISAs and get the returns you expect for a risk you’re willing to take.

older savers - Zopa

It wasn’t that long ago when you could walk into a high street building society and open a savings account with a 4 to 5% return. These days, a relatively puny 1.2% is more typical. [1]

Given the historically low returns from cash savings, it’s well worth considering other options. ISAs offer significant tax advantages but there’s a huge difference between investing in low-return cash ISA’s and stocks and shares ISAs. The latter generate much higher returns, but with markedly higher risk.

The middle way

Zopa - The FeelGood Money Company™, offers a middle way. Its IFISA product offers much higher returns than a cash ISA, but with lower risk versus a stocks and shares ISA. IFISA stands for Innovative Finance ISA: rather than investing in volatile stock markets, it invests in Zopa's peer-to-peer (P2P) loans. This means you should expect a much steadier return versus a stocks and shares ISA; Currently Zopa's ISA core product targets a 4.5% return while its ISA-Plus targets 5.2%.

Sounds very similar to those rates that used to be on offer from the high street building societies doesn’t it? Just before the global financial crisis in 2008, the average rate on a UK savings account was 5.09%. The following year it had plunged to 2.21% as central banks around the world slashed interest rates to fight recession. A decade on and high street savings rates are still nowhere near the level they were at in 2008. The average rate on a UK savings account was just 1.18% in 2018. 

How they do it

For the past 14 years Zopa has operated a P2P online lending platform, which directly matches people looking for a low-rate loan with investors seeking a decent rate of interest on their money. It is a system that has helped hundreds of thousands of people earn healthy returns on their savings, at the same time as enabling others to borrow at competitive rates of interest.

Zopa's online platform is naturally low-cost and efficient, which means they can offer a much more attractive proposition to savers and borrowers versus traditional high street banks and building societies. This is a business built on the foundation of honesty, transparency and trust.

A perfect time for IFISA

Zopa  launched its new IFISA product in 2017, in direct response to demand from customers who wanted to access the same sort of steady, decent returns they receive from the P2P lending platform but with the tax advantages of a regular ISA. Just like any ISA, the IFISA allows you to save up to £20,000 tax-free each year, depending on individual tax circumstances.

Many savers will have noticed a steep pick up in volatility across global stock markets recently, making them less confident about investing in stock and shares ISAs. Global stocks as measured by the MSCI World index fell by nearly 8%[2] in the month of December alone.

High street savings rates, meanwhile, appear highly unlikely to get back to the 5% level anytime soon, which makes Zopa and its IFISA product an attractive option capable of delivering a decent return on your money.

Find out more

To learn more about Zopa IFISA and how you can get the returns you expect with no nasty surprises, visit Zopa.com

Remember your capital is at risk and is not protected by the Financial Services Compensation Scheme (FSCS).  Tax treatment depends on your individual circumstances and may be subject to change in the future.

References
[1] http://www.swanlowpark.co.uk/savings-interest-annual
[2] https://www.ishares.com/us/products/239696/ishares-msci-world-etf#chartDialog (total return in US dollars)

 

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