When Were ISAs Introduced?
When were ISAs introduced
When were ISAs introduced? All the way back in 1999 (yes it’s been that long) ISAs were introduced as an alternative to the -much loved at the time- tax incentivised saving schemes and PEPs. As was to be expected by everyone except the then Chancellor Gordon Brown, the new scheme – which at first glance seemed a comparatively meagre offering of the same product- went down like a lead balloon. Despite the comparatively low offerings and increasingly complex rules prompted by the new ISA, however, the air of negativity soon subsided.
This was in part due to the huge boom technology industries boom during the 2000s, which accompanied by the stale market conditions of the late nineties led to a frenzy of investment. Everybody wanted to get in on the action! As a result, within a 12-month ptheriod of the ISA being launched, stocks & shares ISA sales rocketed to a solid £9 billion. Whilst this honeymoon period (with stocks & shares ISAs in particular) came to an end over the time -in no small part due to the gradual implosion of the technology sector- a general love affair for ISAs has remained across the UK, with many people instead opting for cash ISAs. Regardless of the type, ISAs have remained a commonplace fixture with everyday investors. Because of their ability to allow investors to invest completely tax-free, ISAs have always presented themselves as a lucrative saving or investment tool. Launched as a means of encouraging people to invest for their future and make the most of their money, ISAs have well and truly cemented their place within the British finance industry.
As with most things, people tend to tire easily of things that don’t offer them much in terms of a reward. Over time, the interest rates that cash ISAs have offered investors have continued to slump year on year. These days, the highest cash ISA rate on offer is 1.35% (as of February 21 2019) Naturally, people started to look for an alternative, and began to turn their back on traditional ISAs. Whilst their popularity traditionally remained strong, the last few years have seen a steady decline in ISA uptake.
Now that we’ve covered the question of ‘when were ISAs introduced’, let’s address the introduction of a relatively new service. A new ISA. One that has changed the rules of the game indefinitely. The Innovative Finance ISA was posited by many as a new and exciting alternative to the traditional ISA. But just why has it become so popular, and why was it invented in the first place?
A catalyst for change
It’s a tough world out there for the little guys. If you own or are part of a small/medium sized business, if so, you are probably already more than aware. These days banks are growing increasingly reluctant to lend money, and businesses are suffering. The SME Alliance -a group that stands for thousands of smaller sized businesses across the UK- recently highlighted the extent of the mistreatment that was facilitated by larger banking groups like RBS and Lloyds. The group alleged that banks with large legal teams were delaying and frustrating small businesses and charging them often objectionable (and sometimes obscene) fees. With dissatisfaction rising in the ranks of SMEs everywhere, the government had to think, and think fast. They needed to come up with a solution in order could relieve the pressure, and in doing so reduce the monopoly that the banks were holding on the financial industry.
Born out of necessity: why was the IFISA created?
With pressure continuously threatening to come to a head, something had to give, and everyone knew it, including the government. Eventually the government came across an alternative. Peer to peer lending proved a cost-effective and simplistic means for SMEs to raise money. When contrasted against the costs of involving a bank, peer to peer lending platforms were far cheaper to use.
In an environment besieged by low interest rates, the government also saw peer to peer lending as a potential alternative for investors to earn higher returns. Seeing investors as being ill-served, and SMEs as being caught in the throes of a vicious cycle, the government saw the potential for what could be a harmonious union. And just like that, the Innovative Finance ISA was born. A product born out of necessity, the Innovative Finance ISA served two groups of people that had both been ill-treated by the traditional financial institution.
What’s the difference between a traditional ISA and an Innovative Finance ISA?
So what is an Innovative Finance ISA? Innovative Finance ISAs remove the necessity for banks, allowing investors to invest their money without having to go through any sort of middle man. Operating under the umbrella of peer to peer lending, a peer to peer lending ISA gives investors the opportunity to lend their money directly to a borrower and earn comparatively higher interest rates than what they would they could earn with traditional cash ISAs, albeit in exchange for increased risks.
Innovative Finance ISAs were received with open arms by those generally despondent about the pitifully low interest rates. They have grown in popularity year on year. Last year approximately 69 billion was invested into IF ISAs by British investors, despite the fact that it only making up for 1% of the current ISA market. Whilst IF ISAs are more exposed to risk than their traditional counterparts, they do offer the potential for much more lucrative returns (providing that everything goes to plan!). As with any investment, this isn’t always the case and you should note that investments in an Innovative Finance ISA are not protected by the Financial Services Compensation Scheme (FSCS).
So, now that we’ve covered the question of ‘when were ISAs introduced, you may be interested in discovering more about our Innovative Finance ISA and how it can benefit you. If you’re interested in learning more about our IF ISA, feel free to get in touch today.