With new offerings entering the field of play each year, it can be difficult to know which financial vehicle to choose as the home for your money. Today, loan and investment services company Zopa provided news on their Innovative Finance ISA, which it believes could offer a viable alternative to the traditional stocks and shares ISA.
The company says that for individuals willing to take risks in order to make ‘good’ returns, the Innovative Finance ISA is a valuable option.
“Unlike the Stocks and Shares ISA, it isn’t linked to the stock market so doesn’t carry the risk of an investment going up or down in line with the equity market, nor does it carry the complicated charges and fees levied by the major investment platforms.” The company’s statement read.
What is it Zopa’s IFISA and what does it offer?
The IFISA enables customers to earn tax-free interest on peer-to-peer investments. Essentially, Zopa will use its clients’ ISA funds to fund personal loans to low-risk UK borrowers, much like any non-ISA Zopa investment. The key difference the company points out is the tax free nature of the IFISA.
In terms of returns, Zopa says that unlike a Stocks and Shares ISA, their offering has target rates of return, with its Core IFISA forecasting 5% growth and its Plus IFISA hoping for 6% growth per annum.
What about the risks?
The company say they are completely transparent with their loan book, and has a 15 year record to back up their risk management acumen.
They also noted that new FCA rules mean that all P2P platforms now ask potential investors a series of questions about their specific investments to determine the appropriateness of the mechanism for each user.
Zopa add that while their ISA is meant for users wanted to avoid the volatility of the stock market, people could potentially invest in an IFISA, a Stocks and Shares ISA and a Cash ISA, and be completely diversified across asset classes.
And where is the Innovative Finance ISA fine print?
The company said you can transfer existing or previous years’ ISAs into an IFISA for free, even if these aren’t held with Zopa. They also add that as soon as you start, you’ll be able to earn the market rate immediately and there are no introductory rates.
In terms of transferring out, the company said that you can sell your loans to other investors for a 1% sale fee.
A customer can only contribute your annual allowance to one IFISA per tax year, but you can transfer existing ISA balances to multiple Innovative Finance ISA accounts.
The company finished by warning users that they should transfer existing ISA balances by using the transfer process, simply withdrawing funds or closing an existing ISA will mean you lose its ‘wrapped up’ status.
Zopa comments on their Innovative Finance ISA
Natasha Wear, Zopa’s P2P CEO, states:
“Combining robust returns with well-managed risk, the Zopa IFISA is a reliable and stable alternative to investing in the stock market.”
“It’s designed for investors who want to diversify their portfolio or for those people who are worried about the volatility and risks involved in investing in equities but are still happy to take some risk with their money for a good return.”
“Zopa’s IFISA offers retail investors a well-diversified portfolio of low risk loans, and a predictable, stable, and attractive return on their investment. We have over 15 years’ experience of lending and risk management helping individuals financially in both little and life changing ways – like fixing homes, tying the knot, or getting a car.”