What’s An Innovative Finance ISA?
An Innovative Finance Individual Savings Account or IFISA is a type of tax-free savings account available to investors in the United Kingdom.
It was created for people who want to invest their money without having to go through an adviser, and it offers some features that are similar to stocks trading:
- Low minimum investment amounts
- Tax-free income from capital gains and dividends
- Capital can be withdrawn at any time with no penalties or fees
IFISA also allows you to invest in P2P or peer to peer lending investment within a tax-free wrapper.
The flexible asset allocation feature is one of the most attractive innovative finance ISA or IFISA accounts.
It enables you to decide what percentage of your portfolio you want to invest in shares, bonds, property and other assets with a single account – therefore saving time for potential investors.
They’re also ideal if having more than £15000 available at any given point makes it difficult for someone’s finances: they enable people to have their capital spread across different types of investments rather than being invested all in just one place.
Innovative finance ISA or IFISA accounts enable you to choose an unlimited number of stocks2, funds and other investments from one company: so your money doesn’t get spread around different places but instead stays together where it belongs (in your Innovative Finance account).
It enables people who want to control things like taxes, what they invest in, and where their money goes.
This is because it’s a new type of ISA that can be opened up online – no need to go into the bank branch or call them on the phone.
How Does an IFISA Work?
An IFISA1 gives you a way to invest without worrying about being taxed on your returns.
You can have funds from the account transferred into shares and share classes that don’t generate capital gains tax, such as Income Shares ISAs or Capital Gains Tax-Eligible Funds.
First, you set up an account with Innovative Finance and fund it.
Choose what sort of investments you want to invest in, how much risk you are willing to take on, and when you would like your money invested – this could be every day or once a week.
The next step is choosing the length of time you want your investment period to last from as little as one month to five years.
This new type of ISA has been made possible by recent legislation that enabled individuals over 18 to open online accounts without needing permission from someone else first (e.g., their parents).
So if you’re not sure where your child’s savings should go but still worried about them being too young to handle it, then you can set up an account for them and put the money in.
The best thing about this type of ISA is that there are no limits on how much you’re allowed to deposit, which means your child’s grandparents were willing to match their savings or fund 50% of what they save from 18 21 years old.
As long as they’re over 18 themselves when they sign up with Innovative Finance, all three generations could be held at once.
This way, nobody has access to any other person’s funds except their own!
What Are the Risks Associated with Having an Innovative ISA?
There can be a level of risk if you sign up for an Innovative ISA, but the benefits far outweigh them.
The main risk is that while a regular savings account or pension fund has a set rate of return and fixed amount invested, in this case, your capital would not necessarily grow at the same speed as it could with other types of investments like shares or bonds – so there’s more of a chance they’ll run out before they’re 65 (the age when most people stop working).
The Best Investments You Can Do in IFISA
You could invest in P2P platforms or peer lending platforms such as peer to peer lending or crowdfunding platform that offer competitive interest rates on loans and equity stakes (such as Zopa, Ratesetter and Funding Circle).
These self-selecting businesses provide an alternative to traditional banking and offer competitive rates for active investors seeking attractive returns.
Does FSCS Cover IFISA?
Yes, Innovative Finance ISAs are covered by the Financial Services Compensation Scheme (FSCS), just like regular cash and stocks & shares ISAs.
Can I have an innovative finance ISA and a stocks and shares ISA?
Yes, you can have both types of ISAs.
Can you transfer an innovative finance ISA to a cash ISA?
No, the Innovative Finance ISA cannot be transferred to a cash ISA.
How Much Can You Earn From an IFISA Before Paying Tax?
Innovative Finance ISAs are non-taxable up to £12,000 per year.
Innovative finance ISA or IFISA are perfect for those who don’t know much about investing but still want an easy way to grow money with consistent returns without spending too much time on decisions like which stocks to buy etc., as the investor can invest in a diversified portfolio that will grow and change as the market does.
They’re also great for those who are saving up for something more specific, such as their children’s university fees – it means they don’t have to worry about how well their investment is doing or what changes might happen with interest rates etc., because all of this has been taken care of by the ISA provider.