Cash ISA Uncertainty? Why Investors Are Exploring IFISAs
With speculation about Cash ISA changes, inflation at a 10-month high, and government focus on increasing retail investing, now is the time to review your tax-free savings strategy.
For years, Cash ISAs have been a cornerstone of tax-free saving in the UK, offering a safe place to store money while benefiting from tax-free interest. However, recent uncertainty around potential policy changes, coupled with the ongoing impact of inflation on real returns, is prompting many investors to reconsider their options.
Could an Innovative Finance ISA (IFISA) provide you with a better tax-free alternative?
WHAT’S HAPPENING WITH CASH ISAS?
Uncertain future and a potential £4,000 cap
While speculation was previously circulating that the Cash ISA might be axed, recent reports suggest the government is considering reducing the annual tax-free Cash ISA limit from £20,000 to £4,000. While no formal decision has been made, this raises questions about the long-term viability of using Cash ISAs as a primary tax-free savings vehicle. If changes are implemented, investors could lose the ability to shelter up to £20,000 in cash from tax each year.
Inflation at a 10 Month High = Cash ISAs Are Losing Value in Real Terms
Inflation has risen to 3%, the highest in 10 months. While some Cash ISAs currently offer interest rates of 3-5%, Bank of England data shows that the average Cash ISA deposit in January was yielding just 1.77% meaning many savers are seeing their real returns eroded by inflation. Rising living costs and market fluctuations mean investors need higher-yielding options to preserve and grow their wealth. Some investors are considering Innovative Finance ISAs (IFISAs) such as FOLK2FOLK’s IFISA which offers a fixed rate of 8.75% p.a. tax-free, to provide an alternative to inflation-exposed cash.
WHAT IS AN IFISA?
An Innovative Finance ISA (IFISA) is a government-approved ISA that allows investors to lend money to businesses and earn tax-free interest in return. Unlike a Cash ISA, which holds deposits in a bank, an IFISA enables investments in secured, property-backed loans, typically offering higher returns.
With a FOLK2FOLK IFISA, investors can:
Earn from 8.75% p.a. tax-free, higher than Cash ISAs.
Receive a fixed monthly income, providing predictable cash flow.
Invest in UK businesses secured against property, reducing risk exposure.
Transfer existing ISAs easily with a hassle-free process.
WHY INVESTORS MOVE FROM CASH ISAS TO IFISAS
Many investors who transfer their Cash ISAs into IFISAs are doing it for a better return on their tax-free savings while retaining an element of security through property-backed investments.
Comparing Cash ISA and IFISA:
| FEATURE | Cash ISA | FOLK2FOLK IFISA |
| Tax-Free Interest | Yes | Yes |
| Returns | Best rates currently appear to be around 3-5%, but according to Bank of England data the average deposit is yielding 1.77% | Fixed from 8.75% p.a. |
| Security | FSCS protected (up to £85k) if the financial institution fails | Capital is secured against UK property. If FOLK2FOLK fails there is no FSCS protection, however a Wind Down Provider will manage investments to continue capital and interest payments |
| Risk Level | Lower (but inflation erodes value) | Higher (interest and capital are at risk and depend upon borrower repayments) |
| Liquidity | Easy access (varies by provider) | Fixed investment term (typically 1-5 years). Investors can list their investments for sale via a secondary market. All investments have sold to date, but there is no guarantee of sale |
| Use of Funds | Held in cash | Lent to regional UK businesses to grow, develop or diversify |
‘USE IT OR LOSE IT’ – WHY NOW IS THE TIME TO ACT
With speculation that the Cash ISA limit may be cut to £4,000, this could be one of the last years to use the full £20,000 allowance.
By transferring or opening an IFISA now, you can lock in tax-free returns before the tax year ends and potentially earn more from your savings.
How to Transfer Your ISA to an IFISA
Transferring an ISA to FOLK2FOLK’s IFISA is simple and hassle-free:
- Register and onboard as a FOLK2FOLK IFISA Investor:
Sign up online in minutes. - Complete the IFISA transfer form:
We’ll handle the paperwork with your current ISA provider. - Start earning tax-free interest:
Once your funds are transferred and you’ve entered into an investment opportunity, you begin receiving monthly income from 8.75% p.a.
Transferring an existing ISA does not affect your annual ISA allowance, meaning you can still invest up to £20,000 this tax year.
IS AN IFISA RIGHT FOR YOU?
We are unable to provide financial advice, however while IFISAs offer higher returns than Cash ISAs your capital is at risk. Investors should consider their risk appetite and investment goals before making a decision.
However, if you are:
Looking for higher, fixed, tax-free income than a Cash ISA provides
Comfortable with a property-backed investment
Interested in diversifying your portfolio
…then an IFISA could be a great way to put your money to work.
With Cash ISA uncertainty, inflation at a 10-month high, and policy changes on the horizon, now is the time to consider an IFISA as part of your tax-free savings strategy.
Find out more about our IFISA and start your IFISA journey today!
