- Cash ISA interest rates now falling – are consumers looking more closely at IFISAs?
- People seeking potential for higher returns
The value of investment into Innovative Finance ISAs (IFISAs) has risen 46% in the last year, from £563m last year to £821m this year as awareness of it continues to increase, says CapitalRise, an IFISA provider.
The value of investment in IFISAs – which allow consumers to invest in alternative opportunities, such as funding property developments – has risen.
Uma Rajah, CEO of CapitalRise, says that lower returns on cash savings are leading to some people exploring new options to make their money work harder for them. The average target return for an IFISA last year was 8.83%, according to research by Alternative Credit Investor.
Data from the Bank of England shows that despite the Bank Rate standing at 4.75%, the average interest rate on Cash ISAs currently stands at just 1.8%. While interest rates are still much more lower than their 25 year highs, it would appear that not all consumers are benefiting from them.
CapitalRise points out that the risks involved with an IFISA are clearly much higher than Cash ISAs, given factors such as the potential for default from the borrower. Cash ISAs, by contrast, are protected by the Financial Services Compensation Scheme (FSCS), so do not carry the same risks.
Uma Rajah explains that, while an IFISA is not a guaranteed savings product, people who are prepared to put a portion of their capital at a higher risk can dedicate some or all of their £20,000 ISA allowance to an IFISA. This could give them a chance for a better overall return on their capital.
Uma Rajah adds: “With inflation stubbornly high, people need their money to work hard for them. Despite three years of elevated interest rates, cash savings products, on the whole aren’t doing that.”
“A cash ISA offering an interest rate three percentage points below the Bank Rate just isn’t an attractive enough product to everyone. On average, though, that’s what people in the UK are getting.”
“Consumers are having to look at products with the potential for higher returns. With CGT rising, a tax-efficient IFISA might look very attractive.”
“People do need to be aware that an IFISA is a very different product toa Cash ISA – it involves putting capital at risk. However, the potential returns are much higher to reflect that risk.”
CapitalRise’s IFISA product allows individuals to invest in loans backed by prime property. It focuses on financing luxury properties in some of the wealthiest areas of London and the South East, such as Mayfair, Chelsea and Bloomsbury, and the prime Home Counties such as St George’s Hill and the Wentworth Estate.
Year end 5th April 2023. Source: HMRC
Source: Bank of England
Year end 5th April 2023
