The IFISA Phenomenon – The New Way to Invest - Dispatch Weekly

Why Should You Invest? In recent times, there has been a distinct focus on the economic climate in almost all parts of the world. From the UK property crash in 2008 to the great recession in Greece, economies are crashing and the rate of inflation is on the rise. People who do not have cash savings or reserves are plunged into debt or financial crisis.

Thinking about the Future

The basic ideology of most generations has been to think about the present, which is fine to some degree, but with recent uncertainties about the global financial state, it’s time to start putting the future into consideration to make sure it’s secured and to have a safety net for unforeseen events or a change in circumstances. For example, with the Brexit pandemonium looming for UK residents and the uncertainty surrounding the issue as well as deals reaching a deadlock, it would be a wise idea to start planning for the years ahead.

Now, making investments to generate savings is not as difficult as you might think. You might have heard of the phrase “let your money work for you”, a good example here is to put your cash into an Individual Savings Account (ISA) and yield a tax-free interest at the end of a fixed period. If you do not have the right knowledge about investment, you can take the help of an advisor.

There are different types of ISAs including Cash ISAs and Stock & Shares ISAs but the Innovative Finance ISA (IFISA) is fast becoming the new trend in the ISA market.

Innovative Finance ISAs (IFISAs) use Peer-to-Peer (P2P) lending as a platform to enable individuals and businesses to borrow and lend money without the use of an official financial institution. P2P allows borrowers to directly connect with lenders, offering a possible higher return than a bank savings account with up to £20,000 tax-free investment.

When deciding what form of IFISA P2P lending investment to choose, you will be presented with the choice of; Consumer, Small & Medium-sized Enterprises (SMEs) and Property Lending.

Consumer Lending: The most common P2P Lending option and mostly consists of loans to individuals rather than businesses – they tend to be small-sized loans. Majority of these loans are for debt consolidation purposes such as funding for weddings, home repairs, etc.

SME Lending: Typically for small businesses looking for a loan due to the difficulty of bank loans in recent years. These can be secured against the company’s assets or can even be backed by a personal guarantor such as the shareholders or directors.

Property Lending: These loans are made to property developers, constructors or property investors. Borrowers are preferring P2P lending as opposed to the dreaded process required for a bank loan. The property will be used in the event of a payment default also.

IFISA’s give the lender the opportunity to invest in any P2P project such as a new care home, or even a fresh and exciting start-up enterprise. As the lender, you have the capability to choose how much to invest, what to invest into and the terms of that investment – a sense of freedom you couldn’t get with a Cash ISA.

QuickISA is a new ISA search engine that allows UK taxpayers (18 and over) to research the best Innovative Finance ISA deals in the current market. This is a very attractive proposition for UK consumers because a traditional Cash ISA only returns 0.5% which is currently below the interest rate.

Whereas, an IFISA – which is riskier than the traditional Cash ISA, could yield higher returns of between 8% and 10%.

When investing in an IFISA there will be risks associated with it due to the higher rates of interest that can be achieved through P2P lending. The risk is that there’s a possibility of losing your capital with no protection from the Financial Services Compensation. However, P2P lending is fully regulated by the Financial Conduct Authority.

Furthermore, risk can easily be diversified through the investment in any combination of the 3 ISA schemes. You can also opt for a Fixed Rate ISA where you put away a lump sum to get a tax-free, fixed interest rate.

As the famous saying goes, ‘High risk, high return’.