Financial Independence can often rely on careful investment in the right areas with products that give peace of mind and offer some level of security. Traditional ISAs are often promoted as being a good way of starting your savings journey, and support your bid for financial investment. As IFISAs are a comparatively new financial product there is some confusion as to your options, how effective they can be as methods of saving your money, and how to begin IFISA investments. Our friends at Just ISA break down some of the most important points below!
What Are IFISAs, And What Are My Saving Options?
Innovative Finance ISAs are a form of investment that have been available to savers since 2017 and are a new version of existing ISA options. IFISAs differ from the traditional cash, stocks and shares ISAs by focusing exclusively on Peer-To-Peer lending – where funds are leant directly to borrowers by the company that you invest with, and returns are paid based on the success of the borrowers.
Peer-to-peer lending allows those offering IFISA investment opportunities to expand the areas in which you can invest your savings – from housing developments and precious metals to the litigation funding investment offered by Just. In this way, your investment and savings options are many, allowing you much more choice and control over your investment and where your money goes – particularly important if ethical options are central to your financial independence plan.
How Can IFISAs Help My Push For Financial Independence?
Traditional ISAs are commonly offered by banks or building societies and usually don’t have particularly high interest rates or levels of risk – they give savers a great option for earning a small amount of interest, but are not necessarily the best choice for those looking for quicker financial gains.
IFISAs, due to their peer-to-peer nature, can offer investors a much higher level of interest per annum – the Just IFISA, for example, offers up to 8% interest – although it should be noted that the risk to your capital is much higher than with traditional ISAs.
The minimum period that your investment would be held for is usually two years – great for short-term financial boosts – and can often go all the way up to 10 years, suiting those looking for a longer period over which to leverage your funds (and the extended interest rates that come with it).
Accounts can often be opened with a little as £2,000, making IFISAs an excellent entry-level investment and much more accessible. As a form of ISA, IFISA investments & returns are also tax-free within your yearly ISA limit, allowing you more control over the amount you save – and also the amount you withdraw at the end of your investment period.
How Do I Invest In IFISAs
Like traditional ISAs, investing in IFISAs can be very straightforward – each provider will have a minimum investment level required, and you can invest up to your yearly ISA maximum. You can even move your money from an existing ISA into an IFISA, so long as you do not exceed the yearly ISA limit.
During each tax year, you can only invest in one IFISA – so making sure you choose the right area of investment, terms, and company to invest with is very important. Interest on your investment also varies from product to product, as will minimum lengths of investment time.
Your investment journey will usually start by registering your details with your chosen IFISA provider, often whilst accessing a brochure with full details of the investment offering and more about the provider. From there, most providers will contact you directly to discuss the next steps and taking your investment forward.
What Are The Risks?
Whilst no investment is truly safe, and your capital will be at risk, most IFISA companies have a set of processes in place that attempt to reduce those risks. .
IFISAs focused on house building and land acquisition might limit themselves to government-backed building projects only, or to fund ongoing construction in areas currently experiencing a boom in house prices and sales numbers.
IFISA providers are also regulated by the Financial Conduct Authority, or FCA, which sets out a series of standards and requirements for products by which providers must abide. It is important to note that these rules and regulations do not reduce the risks of your investment, but they do control how IFISA providers can act and what they are able to offer to investors.