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What is an ISA?
Individual Savings Accounts, or ISAs, are arguably the simplest and most widely understood form of ISA account. They are a straightforward way to save your money and earn tax-free interest on your savings. Like any other ISA variety, the annual limit currently stands at £20,000 per year and can be split across different ISA accounts and types.
In these standard ISA accounts, your savings are protected by the Financial Services Compensation Scheme (FSCS). It means you can rest assured your savings are protected should your provider ever come into trouble and be unable to return your investment.
With ISAs, your money remains easily accessible to you throughout, meaning the interest rates offered tend to be lower. But for those wanting a quick, easy, and short-term saving solution with tax-free interest, they can be a great choice.
What is an Innovative Finance ISA?
Innovative Finance ISAs, or IFISAs, also offer tax-free interest rates. But unlike regular ISAs, where you go through a financial institution, Innovative Finance ISAs operate through peer-to-peer lending or crowdfunding. Investors lend their money to private borrowers upon an agreement of set returns.
Because there is a set period to your investment, your money is not available to you until the end of your term. But, as a result, the interest returns are often higher than both cash and stocks and shares ISAs. Interest returns on an Innovative Finance ISA average at about 8-9% per year.
Innovative Finance ISAs are regulated by the FCA. Borrowers will most likely have insurance cover in place to help ensure your investment is safe regardless of any change to their individual financial circumstances.