Best ISA Rates
Best ISA Rates
Different types of ISA are offered by banks, building societies and other platforms so that you can save your cash while earning tax-free interest. But not all ISAs are created equal – and there are plenty of factors to consider when choosing the right option for you.
Cash ISAs are traditionally the most popular type. They’re relatively simple and only differ from traditional savings accounts in a couple of ways – you don’t have to pay tax on the interest and there’s a limit on the amount of cash you can transfer into the account in any given tax year. But do they offer the best ISA rates?
In short, no.
As you can see from the graphic above, the average returns are very low. The highest rate we could find was just above 2% which means returns on a cash ISA could in fact be wiped out by inflation. Therefore, a cash ISA isn’t for anyone looking to make large returns on their investments.
Innovative Finance ISAs
The Innovative Finance ISA (IFISA) is much newer by comparison; it was only created in 2016, and awareness remains low. It still allows for tax-free interest savings on up to £20,000 in any given tax year, but it allows you to do so by investing in different types of peer to peer loans including property, consumer and business.
The main advantage of IFISAs by comparison to cash ISAs is that the interest rates are significantly higher. The average interest rate on the IFISAs outlined in the chart above is 6.15%, triple the highest interest rate on offer for cash ISAs. IFISA providers can offer a much higher rate because there isn’t a bank or building society in the way to manage the account or take a cut of your interest. But with the increased returns come increased risks: an IFISA is an investment, not a savings account, and it is not covered by the Financial Services Compensation Scheme (FSCS).
Choosing your IFISA
Depending on the platform you choose, you can invest in different types of secured or unsecured loans, which suits those looking for more choice in their investments. A secured loan can sometimes have a lower return, but your money benefits from a degree of protection in the case of a borrower defaulting. Ultimately, only you know your appetite for risk – in this case, you have to assess whether you’re willing to shoulder the risk of an unsecured loan in return for a higher target return.
Depending on the IFISA you choose, your funds might be inaccessible for certain periods of time. But this isn’t always the case – for example, interest via The House Crowd’s IFISA can be paid twice yearly, if you would prefer to receive regular income than to ‘compound’ the interest by reinvesting it.
You also need to consider the minimum investment that is required by the platform. In some cases, the minimum investment required can be quite high, which can stop some people being able to invest. On the other hand, if the target return and security is good, and you have a lump sum to invest say, towards your retirement pot, it might be a better option for you.
The platform you choose should also reassure you with regards to how they protect your capital from fluctuations in the market or borrower defaults (both relevant when investing directly in property or businesses). At The House Crowd, we have a strict due diligence process and monitoring system, and always set a conservative loan-to-value (LTV). All of our loans are secured by the underlying value of the borrower’s property.
Looking beyond the best ISA rates
There are many factors to consider before investing in any ISA. Remember that a higher interest rate doesn’t necessarily mean a good ISA – you need to consider other factors like how your investment is secured, what the minimum investment amount is, and minimum term required.
Why not check out The House Crowd’s IFISA (peer to peer lending ISA) and other peer to peer lending options? We target a return of 7%* p.a. with your money spread across our secured property loan portfolio.