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Are you making the most of your ISA allowance?

How to use LendingCrowd innovative finance ISAs to make most of ISA allowance

Next year will mark the 20th anniversary of the Individual Savings Account (ISA), which offers tax-free* returns on savings and investments. Since 1999, the total amount you can contribute to an ISA each year has almost trebled, from £7,000 to £20,000.

Official figures from HM Revenue & Customs show that savers subscribed to more than 11 million ISAs in the tax year ending 5 April 2017. However, Cash ISAs fell out of favour, with the total amount saved in these accounts tumbling by a third to £39.2 billion.

Why has the popularity of the Cash ISA declined so sharply? Well, rock-bottom interest rates mean the average return for savers stands at little over 1%, according to personal finance data provider Moneyfacts. That’s well below the current rate of inflation and means that savings held in many Cash ISAs are actually falling in value once the rising cost of living is taken into account.

In fact, a report published last year by the Social Market Foundation showed that, over the previous five years, the UK’s savers had lost about £8 billion from the combined value of their nest eggs. This is because money left in instant-access cash savings accounts isn’t keeping pace with inflation, which was running at 3% in January – its highest level for more than five years.

There is an alternative for those willing to take additional risk in seeking higher returns than cash – the Innovative Finance ISA (IFISA). Launched in April 2016, IFISAs enable you to lend directly to businesses or individuals (this is known as peer-to-peer lending) with no tax to pay on your returns*.

Banks have been lending their customers’ money to businesses for centuries, but now you get in on the act thanks to our online peer-to-peer platform.

Fully authorised by the Financial Conduct Authority (FCA), we aim to deliver higher returns for investors by combining the best of technology with prudent banking tradition. We only lend to businesses that have been carefully selected by our Credit Team, who have a century of combined financial services experience.

ISAs at LendingCrowd

Our Growth ISA, which targets a 6%** return, is designed for investors who want a quick and simple way to create a diversified portfolio of secured business loans. It automatically spreads investments across as many loans as possible, reinvesting interest and capital repayments in additional loans for further diversification.

The new Income ISA works in a similar way, with the key difference being that investors can take their interest as income while their capital repayments reinvest automatically. This makes it ideal for those who want to generate a consistent level of income from a lump sum without eating into their capital. The target return for the Income ISA is 5.6%**.

Savvy investors know that diversification is the best way to help manage risk – in other words, don’t put all of your eggs in one basket. The longer you hold a Growth ISA or Income ISA, the more diversified your portfolio will become, as our platform automatically invests in new loans on your behalf. Spreading investments across as many businesses as possible means the impact is reduced if a borrower can’t repay their loan.

Thanks to this diversified and balanced approach, investors in our Growth ISA have achieved an average return of 8.5% – well above the target rate of 6% and almost three times the current rate of inflation. Please note that past performance does not guarantee future returns. As an investor, it’s important to remember you’re lending to businesses so your capital is at risk.

Small firms are the backbone of the economy, accounting for more than 99% of the business population, and they’re increasingly thinking outside the bank when it comes to their finance options, creating more opportunities for investors. Research published in February by the government-owned British Business Bank showed that the total value of peer-to-peer business lending across the UK soared by 51% to almost £1.8 billion in 2017.

By joining thousands of other investors, you can lend to creditworthy British businesses, providing them with much-needed support. In return, your money has the opportunity to work harder for you.

*As an investor, it’s important to remember you’re lending to businesses so your capital is at risk. Tax treatment depends on the individual circumstances of each investor and may be subject to change in future.

**Capital at risk. Target rate is variable, net of ongoing repayment fees and bad debt.

Article author

Gareth Mackie

Gareth Mackie

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If you invest through LendingCrowd you should understand that your capital is at risk.

LendingCrowd is the trading name of Edinburgh Alternative Finance Limited, Company Number SC468392, authorised and regulated by the Financial Conduct Authority (Firm reference number 670991). LendingCrowd and its products are not covered by the Financial Services Compensation Scheme.

Read more about the risk involved when investing and borrowing.

The company's registered office is 23 Manor Place, Edinburgh, EH3 7DX.

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