Innovative finance ISAs, also referred to as a IFISA, are one of the many types of individual savings accounts available to savers and investors.
Whilst everyday cash ISAs, stocks and shares ISAs and Help to Buy products are most commonly known, innovative finance ISAs are a relatively new savings product offering potentially higher returns and tax savings, in particular for higher earners.
So what is an IFISA?
An IFISA is an ISA that involves peer-to-peer loans instead of cash or a stocks and shares investment.
Popular amongst businesses and property lenders, as well as high-earning individuals, the innovative finance ISA works by cutting out banks as the middleman and instead allowing investors the opportunity to invest directly into businesses via online portal, which is the peer-to-peer element.
As a result, higher interest rates are typically achieved compared to cash of investment savings accounts. And since the start of the 2016/17 tax year, peer-to-peer lenders have been allowed to offer a tax-free ISA too.
IFISA accounts aren’t readily available through your high street bank, but specialist innovative finance ISA experts such as Fluid ISA can offer a fixed rate of interest of 6% a year over a fixed three year investment bond.
An innovative finance individual savings account still lives within the wider ISA umbrella, so the combined £20,000 annual investment/savings limit still applies.
What other types of individual savings accounts are available?
IFISA accounts won’t be the best option for some investors as potential risks are higher, although this is accounted for by the higher rate of potential return.
Those on basic-rate or higher-rate tax bands can earn tax-free interest already under the Personal Savings Allowance (£1,000 and £500 earned tax-free).
So you’d need to invest towards the top-end of the annual ISA allowance to see the extra benefits of an IFISA compared to other savings pots, but built-up over a three year fixed strategy, savings and returns can and will be made.
