In a time when inflation is at an all-time high, Brits are on a mission to grow their wealth and make smart investment decisions for the future. ISAs are popular options for both new and experienced investors, with over 13 million ISAs opened in the UK as of 2020. The type of ISA that is least common to many investors is the innovative finance ISA (IFISA). This article covers everything that you need to know about this type of savings account to help you make smart financial decisions in 2022.
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What is an innovative finance ISA?
IFISAs are by far the least common type of ISA to invest in. However, they can provide excellent profits to those who qualify for the savings account and know how to make the most of the benefits offered.
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IFISAs are a type of savings account that earns profits from lending out funds to earn tax-free interest through the peer-to-peer lending network. Essentially, IFISAs allow savers to lend out their money to individuals and businesses and earn a profit when the money is paid back through the interest that is accrued.
Opening an IFISA gives consumers access to providers that can facilitate peer-to-peer lending by pairing lenders with borrowers.
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How do IFISAs work?
Just like a regular ISA, you can pay up to £20,000 per year into an IFISA. Once you have deposited money into your account, your IFISA provider will pair your money with borrowers. Over time, you will start to earn a profit when borrowers pay interest on your cash.
Therefore, IFISAs can earn money over the long term. However, account holders must be prepared to leave the funds in their accounts for a long time in order to earn profits. This is because it can take time for borrowers to pay back what they have borrowed.
Can anyone open an IFISA?
The eligibility criteria for IFISAs are slightly tighter than they are for other types of ISA accounts. To open an IFISA, you must qualify as an ISA manager.
An ISA manager is an individual or business that has been authorised by HMRC to manage an ISA account. ISA managers must be over the age of 18 and must have full approval from HMRC. As well as this, individuals must be UK citizens to open an IFISA. You can open an IFISA along with other types of ISA accounts.
Is an IFISA a good investment for 2022?
IFISA accounts provide individuals and businesses with opportunities to profit from the peer-to-peer lending network. However, only those who qualify as an ISA manager are able to open an IFISA in the UK, and there are no guarantees that you will be eligible.
If you qualify as an ISA manager, IFISAs can be a fantastic way to invest your cash. The average return on an IFISA in 2020/2021 was 9%. This is considerably higher than regular savings accounts and could be a great way to protect your wealth against inflation.
However, if it turns out that you aren’t eligible, stocks and shares ISAs are an excellent alternative for those who cannot qualify as a manager. Stocks and shares ISAs place your money into investments and earn money through dividends and share performance. These ISAs often come with high returns and are a great way to get into the stock market.
