This is a little bit of a left-field option. As the banks have decided to lend only to a very select bunch of people and companies, other lenders have moved in. Also it won’t have escaped you that interest rates are currently rubbish. So again, newcomers have come up with ways to offer higher headline rates.
These are peer to peer (P2P) lenders such as Lending Works, Zopa and Crowdstacker. They bypass the banks – and enable us to lend directly to smaller businesses and other individuals. Investors receive a higher rate of interest – it can be up to 6-7% – in return for lending money, but do take the risk that they might not get it back if that new ice cream company or bike manufacturer goes belly up.
These are super new. Zopa’s ISA is coming in the 2017/2018 tax year, for example, and not available yet. Ditto Lending Works.
How much can you put in every year?
You can put in the full £20,000 (17/18 tax year) as long as you’re not putting money into one of the other ISA types.
Where can you invest?
These are specifically designed to hold peer to peer loans to businesses and consumers and some other ‘new finance’ options. It is limited to lending money to these groups, rather than taking an equity stake, or buying a chunk of the business a la Dragons’ Den.
Zopa, for example, will have 3 ISA options – Access, Classic and Plus. Returns are projected to be 3.1%, 3.9% and 6.3%. For the full annual whack of £20,000, you might get back nearly a grand in the Plus option. Tax-free.
Crowdstacker says you can earn between 5% and 7%.
Maybe we’re unnecessarily miserable and old-fashioned about these. Since 2009, Zopa’s defaults have been under 2% according to their website. That’s pretty good risk management. It just feels a little bit iffy to us…..but maybe they will all have the last laugh and we’ll be left looking like overly-cautious progress-phobes.
What are the benefits?
They have all the benefits of a normal ISA in that any growth or income in the underlying investments is tax-free. The income on peer to peer loans tends to be higher than that available on other investments – at 6-7% – though the risk of not getting paid is higher.
Who might it suit?
Those who accept they are doing something a bit new and a bit risky.
Where can you get one?
Part of the problem with innovative finance ISAs is that not many are available yet. Only a handful of providers are set up to offer them. These are the specialist peer to peer lenders, such as Crowdstacker and Zopa, rather than the mainstream investment platforms or the banks.
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