Are you making the most of your 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 is well below the current rate of inflation, which 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 is not 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 savings – 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 income or capital gains 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 online peer-to-peer platforms such as LendingCrowd.

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

LendingCrowd’s 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 platform’s 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 an investor holds a Growth ISA or Income ISA, the more diversified their portfolio will become, as the platform automatically invests in new loans on their behalf. Spreading investments across as many businesses as possible means the impact is reduced if a borrower cannot repay their loan.

Thanks to this diversified and balanced approach, investors in LendingCrowd’s 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.

Small firms are the backbone of the economy, accounting for more than 99% of the business population, and they are 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 rose by 51% to almost £1.8 billion in 2017.

By joining thousands of other investors, you can lend to exciting British businesses, providing them with much-needed support and generating real benefits for the British economy. In return, your money has the opportunity to work harder for you. Find out more at or call 0345 564 1600.

*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.

The contents of this article are for reference purposes only and do not constitute financial or legal advice. Independent financial or legal advice should be sought in relation to any specific matter. Articles are published by us without any knowledge or notice of the circumstances in which you or anyone else may use or rely on articles or any copy of the information, guidance or documents obtained from articles. We operate and publish articles without undertaking or accepting any duty of care or responsibility for articles or their contents, services or facilities. You undertake to rely on them entirely at your own risk, and without recourse to us. No assurance of the quality of articles is given or undertaken (whether as to the accuracy, completeness, fitness for any purpose, conformance to any description or sample, or otherwise), or as to the timeliness of the publication.

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