ISA benefits influence marketplace lenders
This year’s budget holds a lot of promise for all people who are seeking higher returns on their savings. First of all, from April 2017 the allowance for ISAs will be raised to £20,000, a near £5k increase from this year’s £15,240 annual allowance.
The UK government being generous, to savers, (can’t say the same for other contingent groups) also announced a ‘Lifetime ISA’ which offers a 25% “bonus” on savings. Yet it is not as lucrative as it seems on first sight. Firstly, there is a cap of £4,000 per annum. And when the government says this is a Lifetime ISA they don’t mean it literally. If you withdraw your savings before you are 60 years old you will lose the 25% and have to cough up a 5% fee! This is unless you use your savings to buy your first property — this is good if you’re a first time buyer, and made even better when you realise you can move your ‘Help to Buy ISA’ savings across to the Lifetime ISA.
Thanks to Alternative Investment options like peer-to-peer lending (P2P) you can earn an annual rate of return ranging from 3–19%, and with an IFISA, on an even greater allowance than the Lifetime ISA (£15,240 annually compared to £4k). The Innovative Finance ISA gives you the opportunity to earn tax-free interest on your savings, up to the annual allowance. Find out more here: Innovative Finance ISA benefits savers.
Marketplace lending: best investment of 2016
It could be said that peer-to-peer lending is possibly the best bet in 2016 when it comes to alternative investments. An industry that has seen exponential growth in recent years, encouraging new-wave retail investors into a marketplace ensuring high-yield returns, and at a less risky level than some investment vehicles, such as stocks and shares, could be one that provides high interest savings rates, if you see that way. Quick caveat: marketplace lending is not technically a savings product, it is not covered by the FSCS, despite consultation being in place. So be aware, this is a risky product compared to traditional savings vehicles.
A quick glance shows that platforms like RateSetter offer returns of 6% and higher. You get a 6% return if you commit your money for a five-year term. This product ensures a monthly income stream, and with the help of the IFISA, tax free! This assumes you don’t exceed your annual allowance, obviously.
ThinCats with its minimum investment policy of £ 1,000 gives a 9% average return on investment. If you invest in AssetzCapital you have a choice of products; you can invest in accounts which give a guaranteed return of 7% per annum or take higher risk and invest in loans which will give you returns as high as 18%. To the more sophisticated investor you could be looking at tax-free interest on a high risk/high reward product.
And when talking about returns received from peer-to-peer lending platforms (they may have evolved into marketplace lending but they have yet to discard their original name) one must also remember that unlike the Lifetime ISA’s limit of £4,000, the current limit in the IFISA is £15,240, going on to £20,000 in April 2017.
Risk and Access to funds
Risk and Access are two very important factors when investing P2P lending. So how does investment in P2P lending hold up?
Compared to banks, investment in peer-to-peer lending platforms does open up your funds to a certain level of risk. However, platforms like the ones mentioned above have features and security procedures, like provision funds and underwriting, to reduced the risk to a level of relative comfort (depending on your risk appetite). These platforms have actually delivered. To date, major platforms like RateSetter, Wellesley & Co and Zopa can proudly claim that no customer has lost a penny.
Second comes access to funds. Different platforms have different products. However, many of them offer products which give you immediate access to funds, namely the monthly interest repayments. This comes at the sacrifice of a higher return percentage if you left your money and reinvested it, compounding the interest. But even so, you can get a minimum return of 3%, which is more than what big banks like HSBC are offering. Comparing peer-to-peer lending to ensure you understand the varying products on offer and their associated risks is extremely important.
Conclusion
If you want to invest your savings and earn a respectable return than peer-to-peer is a possible alternative investment for you. For 2016, we can say that peer-to-peer lending is possibly the best alternative investment option; it is actually so full of potential that next year we may very well remove the “alternative” tag. Marketplace lending going mainstream? We’ll see.
