It’s hunting season for financial services…
“April 5 is effectively hunting time for financial services who will be reminding savers and investors to make full use of their annual ISA allowance before the end of the tax year – so be prepared!” “But did you know this year you have an additional option when choosing a tax-free home for your money? Well, there is!”
Launched by the government a year ago due to the increased popularity of alternative finance, the Innovative Finance ISA (also known as the IF-ISA) enables investors to use any or all their annual ISA allowance to invest in peer-to-peer or crowdfunded loans,” comments De Nazareth.
IF-ISAs are debt securities that allow investors to lend money to businesses looking for growth capital. Similar to the more traditional cash, stocks and shares ISAs, any returns made with the ‘wrapper’ of the IF-ISA are completely tax-free.
The interest rates on cash ISAs are currently at an all-time low, so investor demand for the IF-ISA is expected to be high in the days before the end of the tax year. According to finance website Moneyfacts (www.moneyfacts.co.uk), the average rate on an easy access cash ISA was just 0.64% in February this year. Compare that with yields of up to 12% on some IF-ISA eligible crowd bonds and it’s not hard to see why investors are likely to be attracted.
“Of course, with returns being higher, so are the risks,” explains De Nazareth. “Your money is not protected by the Financial Services Compensation Scheme if you invest via an IF-ISA and you could lose all your capital if the company you lend to goes bust, something you need to be fully aware of. That is why at Crowd for Angels we provide an extra degree of security to investors in our crowd bonds by securing them against assets of the borrowing company, so while there is an element of risk, the investment is more robust than perhaps they are perceived.”