Why now is the best time to invest in an IFISA
ISA season is still a good six months away, but this may be the best time to consider investing in a new Innovative Finance ISA (IFISA).
First and foremost, time is of the essence. Regulations around appropriateness tests and cooling off periods mean that it can take a few days to set up a new IFISA account – and in some cases a few weeks. New IFISA investors must be able to prove to their peer-to-peer lending platform that they are fully aware of the risks involved in the tax-free investment, and the platform will need time to verify this information and confirm that the investor is a good fit for the product.
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This is the sort of process which is better done when there are months to go before the end of the tax year, in order to save the stress of rushing to complete these administrative checks in the early days of April 2024.
Furthermore, there is a risk that the structure of the IFISA market could change in the next tax year. It has been reported that the Treasury is mulling an ISA overhaul, to be announced in the Autumn Statement next month. Some potential changes could include a thinning of the ISA market, with less popular wrappers such as the IFISA and the Lifetime ISA being axed, or merged into the existing stocks and shares ISA structure.
With so much uncertainty surrounding the future of the IFISA market, this could be the last chance for savvy investors to make the most of their allowance while chasing the higher returns offered by the IFISA.
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And IFISA returns have never been higher. A year of rate hikes has led many P2P lenders to raise their target investor rates well into the double digits. In fact, some platforms are currently offering their highest rates ever. But this rate boom is unlikely to last long.
Last month, the Bank of England opted to hold the base rate at 5.25 per cent – putting an end to 14 consecutive rises, and sparking speculation that rates could start to come down again before long. When this does happen, there is a good chance that P2P platforms will once again bring their rates in line with the market, and this could mean that IFISA returns may be peaking right now.
These upcoming changes to the ISA regime, along with the current high-rate environment and the luxury of time before the end of the current financial year, mean that there may be no better time to invest in an IFISA than right now.
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