Whether you’re looking to invest in a Cash ISA or an Innovative Finance ISA, you need to know if it’s still a good idea to invest your hard-earned money.
*Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 minutes to learn more about investing.
Why save into an ISA?
Using an ISA means you can earn interest on your savings without paying tax on any interest or capital gains – a win-win solution. Unfortunately in recent years, low-interest rates coupled with high inflation make it near impossible to get a good return.
Why use an ISA?
The benefit of an ISA is the tax-free wrapper you will earn on any interest, dividends, or capital gains from your investments, no matter how much you earn. The downside to an ISA is you can only invest up to the maximum annual ISA allowance, which for the 2022/23 financial year is £20,000.
In the 2019/20 tax year, HMRC reported roughly 13 million Adult ISA accounts were subscribed. During that period, HMRC also reported a staggering £75 billion being invested into the ISAs.
Do ISAs give the best rate?
Not all ISAs pay the best interest rate. All banks and building societies advertise the ISAs using gross interest rates and this can help you compare ISA accounts on a like-for-like basis. In times of low-interest rates, the amount of interest you will be gaining (which is linked to the Bank of England’s base rate) means you may end up losing money by keeping it in an ISA.
Are ISAs safe?
Every bank or building society has to be approved by the HMRC and the Financial Conduct Authority (FCA) in order to manage and promote its financial services.
You can usually find this information at the bottom of the provider’s website. However, you should be aware there are some websites which promote an ISA product while not certified by the FCA. To view whether a bank or building society is safe for you to invest in, you should take a moment to look at the FCA Registry and the Government’s list of approved Savings Account (ISA) Managers.
In addition, you could also find out if a provider is registered with the Information Commissioners Office (ICO), which upholds the regulation of data protection in the UK.
Which ISAs give you the best rate of return?
Each ISA has its benefits and drawbacks, but there are different from each other so you can diversify your investment to minimise the risk and maximise the potential rate of return.
Historically, the ISA with the best base rate of return is the Lifetime ISA. However, with the limitation imposed on the LISA, the current best route is either the Stocks & Shares ISA or the Innovative Finance ISA.
| ISA | Pros | Cons |
|---|---|---|
| Lifetime ISA | – You will earn 25% of any investment from the Government (up to £1000) per year – You can use the ISA to help purchase your first home or use it for retirement after you turn 60 years old – Your money is covered by the Financial Services Compensation Scheme (FSCS) | – You can only invest up to £4000 per tax year – You can only open an account between the ages of 18 to the day before your 40th – You can only use the ISA to purchase your first home or withdraw funds after you turn 60 years old – If you withdraw money for any other reason (with the exception of death or terminal disease), you will lose the 25% interest and may also incur a withdrawal penalty fee |
| Stocks & Shares ISA | – You can invest up to the maximum ISA allowance, currently at £20,000 for 2022/23 – Any returns on your investment are tax-free – You may choose where and how to invest your money – Your money is covered by the Financial Services Compensation Scheme (FSCS) if the platform goes bust | – Interest rates can fluctuate depending on the movement in the market – Your investment is at risk. You can lose all the money you have invested – The market is unreliable – There are numerous sources with market tips which could help you make or lose money |
| Innovative Finance ISA | -You can invest up to the maximum ISA allowance, currently at £20,000 for 2022/23 – Any returns on your investment are tax-free – Typically has a higher interest rate than Stocks & Shares ISA and the Cash ISA – IFISA utilises the peer-to-peer lending network and removes the middleman giving you a higher return investment | – Your investment is not covered by the Financial Services Compensation Scheme (FSCS) – Your money is at risk. You may not get back what you invested |
Are ISAs worth the investment?
Innovative Finance ISA, also known as IFISA or P2P ISA, utilises the peer-to-peer lending network. By investing your allowance in an IFISA, you can cut out the middleman (i.e. the bank) and in return gain a higher percentage of the interest rate.
P2P lending has become very popular in recent years as a way for savers to earn more interest compared to alternative ISA or lending accounts. Various platforms offer investors and lenders the ability to put their money as loans to small businesses or individuals, earning a rate of interest over time as their money is paid back*
Broadly speaking, P2P loans are considered high-risk investments. However, the higher the risk, the higher the potential returns. Typical rates across the board are between 4-10% but usually, your money will be tied to that IFISA long-term. Usually, you can withdraw funds as long as they are not being used by the platform, but you may have a waiting period to receive them back.
You can earn *tax-free interest on your investments by financing Support postgraduate education on the Lendwise platform. With an IFISA, you can use our AutoLend feature to help you diversify your investments across multiple loans to minimise the risk of loss. Learn more about how a Lendwise IFISA can help your money do good.
Check our Lender terms and conditions.
You can find out more information about a Lendwise IFISA.
- How much money can you invest in an ISA?
- What is the 2023/24 ISA Allowance limit?
- How many types of ISAs can you have at once?
*Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 minutes to learn more about investing.
*This figure was correct as of 29 June 2023