Six reasons why you should invest in an IFISA
Thinking about investing in an IFISA but not sure whether you’re ready to take the plunge? Here are six reasons why you should:
- IFISAs have come of age
IFISAs clearly filled a gap in the market when they were launched in 2016. After a slow start, within four years there were over 50,000 IFISAs invested in over £1bn of assets, and the market is continuing to grow rapidly. There are currently around 30 available IFISA platforms and, as with any other ISA, there are a range of websites where you can compare the rates and terms on offer. IFISAs returned between 7.8 per cent and nine per cent on average, every year from 2018 to 2021, according to Peer2Peer Finance News research – even through the pandemic – which shows the stability of the asset class. That said, given that the longest track record any provider can have is five full tax years, it’s worth doing thorough due diligence before choosing a platform.
- The returns are better than almost anything else on offer
With low interest rates and inflation denting the returns currently being offered on savings accounts, bonds and cash ISAs, with an IFISA you can earn between four per cent and 10 per cent per annum. While this isn’t guaranteed, there are usually no fees for opening or managing an IFISA, unlike a stocks and shares ISA, where returns aren’t guaranteed either and you’ll usually have to pay management and dealing fees. IFISA yields are higher partly because they involve a higher degree of risk, and partly because they cut out fees to the middle man (e.g. banks) so lenders get a higher proportion of the interest charged.
- Platforms have to be FCA-regulated
IFISA platform providers have to be regulated by HMRC, and only firms that are Financial Conduct Authority-regulated can facilitate the underlying investments. These firms are required to maintain sufficient reserves and have a wind-down plan to protect investors in case of difficulties. Post pandemic, some established P2P providers exited the market but notably, all of their investors were protected.
If you are concerned by the lack of Financial Services Compensation Scheme guarantee for IFISAs, make sure you do thorough due diligence before investing, which should include finding a platform with a proven track record, reading the company information on the platform, doing an internet search and looking them up on Companies House. The same applies for any company wanting to borrow from you. And diversify your portfolio: don’t put all your eggs in one basket.
- You can spread your allowance – and your risk – between different types of ISAs
If you’re not sure whether an IFISA is right for you, you can spread your allowance between a cash ISA, a stocks and shares ISA and an IFISA all in the same year, provided you don’t exceed the £20,000 limit for new money and you only open one of each type. (If you have existing ISAs you can redirect as little or as much as you want into IFISA investments.)
- You can hand-pick your investments
Arguably one of the best things about an IFISA is that many platforms allow you to choose how and where to invest. You can do so according to your appetite for risk or according to your own criteria, such as ethical investing. Alternatively, you could use an IFISA to get into the vibrant property market without having to invest in a physical asset. However you do it, you will be able to pick something tangible to fund and see the real difference your money has made.
- It’s really easy
Because IFISAs are totally managed online, the process for investing couldn’t be simpler. When you find an investment platform you like and a good range of IFISA-eligible investments, simply do your due diligence on the provider and the borrower and then open an account. Before committing your funds you’ll be asked to complete a detailed questionnaire demonstrating that you understand the risks involved, as well as any protections offered by that platform. Then all you need to do is read the regular updates you’ll receive on the status of your investment (or the progress of the development, in the case of a housebuilder) to make sure everything is on track, and wait to earn returns.
For more information on Acorn’s IFISA-friendly investment opportunity offering nine per cent per annum* over a two-year term, visit https://www.simplecrowdfunding.co.uk/property/detail/stanbridge-park-sherston.
Stanbridge Park (pictured) is a new-build development of 45 two, three, four and five-bedroom houses on the edge of the Cotswolds.
Acorn Property Group is a multi-award-winning independent, sustainable housebuilder, with a 26–year track record and an established presence across the South West of England and South Wales.
*Your capital is at risk and returns are not guaranteed.