ISA Investors Abandon Cash For High-Yield P2P Assets

Savers are “abandoning the cash ISA en masse”, as the personal savings allowance (PSA) makes the tax-free wrappers less relevant for consumers, according to a report from P2P Finance News.

New data from UK Finance showed that investment in cash ISAs fell from £773m in March 2017 to just £332m in March 2018 – a decrease of 42 per cent.

According to Andrew Lawson, chief product officer at Zopa, the cash ISA exodus is due to a combination of low interest rates and the introduction of the PSA last year. The PSA allows basic rate tax payers to keep up to £1,000 of the interest earned on their savings each year. Higher rate taxpayers can keep up to £500.

 “This is further evidence that people are abandoning the cash ISA en masse,” said Lawson.

“However, with another interest rate rise on the horizon, people who rely on the PSA need to keep a close eye on their savings so they don’t get caught out.

“Customers really could lose out if they use the PSA instead of the ISA, because the PSA is only tax free for one year while investments into the ISA are tax free for life. Of course, there are plenty of alternatives out there – such as the Innovative Finance ISA (IFISA) – which have higher returns than cash ISAs and are covered by the tax-free wrapper but come with a bit more risk.”

We’ll bring you news of our own, very successful ISA campaign soon. All loans on site are eligible for inclusion in a Money&Co. ISA.  If you do not have a Money&Co. ISA yet, please click on the ISA application tab on the Home page and fill in the form.  You will need your National Insurance number.  The ISA allowance for 2018/19 is £20,000. For full detail on the process, see below.

One of the current offerings on site is a fixed-rate loan at a yield of 8 per cent, rated A. This loan of £200,000 is property-backed, with an A+ rating from our credit committee. It’s a pure loan, not a participation stake, but it offers the security of real estate (roughly at 64 per cent loan-to-value). A gross yield of 8 per cent equates to a return of 7 per cent net of our fees.

The other offering is from Elliotts Hair, rated B+, with a yield fixed by the auction process. The indicative yield (the credit committee’s estimate, more or less) is 9 per cent gross. The current average of bids is 9.8 per cent, with 71 per cent of the £200,000 loan offer filled. More loan offers will be landing soon.

If you invest via our Innovative Finance Individual Savings Account (ISA – see below for a step-by-step guide to how this works) you will receive the income tax-free.

A Process Guide To Innovative Finance ISA Investment

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:

  • Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
  • Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
  • Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.

The ISA allowance for 2018/19 is unchanged from last tax year at ú20,000, 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 ú8,400 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.

It’s relatively easy to logon to our site and register to become a lender. But if that’s all too new-fangled, you can call us on 020 3143 4004 or write to Money&Co., 58 Glentham Road, London SW13 9JJ. We’ll then send you an ISA Brochure, and ISA Transfer Authority form (if you want to transfer monies from a Cash ISA) and a Freepost envelope. Then it’s just a question of following your nose to get that income…


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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.