We’ve said it many times before (just search against ‘Money&Co. great savings robbery’) – yield-hungry savers have a rough deal. Here’s a piece on dismal Cash ISA returns when in the relatively halcyon days when base rates were more than one per cent…
Savers have been handed more dire news as the Bank of England announced its second emergency cut in eight days, slashing base rate to its lowest ever level of 0.1 per cent.
The move was part of a package of rescue measures to fight the economic impact of coronavirus, but will deliver a double-whammy to savers – many of whom are still waiting to see what the damage to their savings rate is from last week’s 0.5 per cent cut.
The base rate cut and a cheap funding pot alongside it likely spell doom for any savers hoping for a decent return on their money in the foreseeable future, with banks facing even less incentive to pay savers for their deposits.
Check out an earlier News article on Money&Co.’s managed portfolio service, with its net return of 7 per cent. It’s got different and greater risks than cash deposits, but it is an option to consider once investors understand what they our doing. The annualised default rate amongst Money&Co. borrowers and £20 million facilitated is 0.03 per cent.
Historical Performance And IFISA Process Guide
That figure is the result of over £20 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
The ISA allowance for 2019/20 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.