We hate to say it, but we told you so. Negative deposit rates have finally arrived – albeit as a way of charging for forex transactions. The Daily Mail reports:
Starling has become the first British bank to introduce negative interest rates for personal account customers, though only those who hold high balances in euros will be affected.
Rather than charging a membership or account fee, the challenger bank will levy a monthly rate of -0.5 per cent on balances of more than €50,000 held in its euro accounts.
The account allows customers to hold, receive, send and spend euros and is aimed at international customers who are often paid in the currency.
We have reported at length and often on the crisis facing income-starved investors, and we saw this coming. Here’s a report on our research from our friends at P2P Finance News – writing a couple of years ago.
Historical Performance And IFISA Process Guide
That figure is the result of over £23 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.