IFISA returns outperform cash and stocks
Cash ISA returns have outperformed the returns from stocks and shares ISAs over the past year, but the Innovative Finance ISA (IFISA) continues to come out top.
According to the latest data from Moneyfacts, the average cash ISA returned 3.73 per cent between February 2023 and February 2024, up from 1.71 per cent the previous year.
By contrast, the average stocks and shares ISA fund saw just 2.8 per cent growth during the same 12-month period, after falling by 3.27 per cent between February 2022 and February 2023.
Read more: LandlordInvest: IFISAs can offer steadier income than listed funds
The relative success of the cash ISA is due to the higher base rate, which has led banks to increase savings rates for customers.
Meanwhile, stock market volatility has led to losses for some investors.
However, IFISA returns have outpaced both, with some of the largest IFISA providers currently offering double-digit returns.
easyMoney – the largest IFISA provider in the UK – offers a range of IFISA accounts with returns of between 5.53 and 10 per cent.
And the largest peer-to-peer lender in the country, Folk2Folk, hiked its IFISA returns last year from 6.5 per cent to 8.75 per cent.
Read more: Interest in IFISAs surges as new rules unveiled
Property lender Kuflink was offering target returns of 12.68 per cent at the time of writing, while fellow property lender CrowdProperty has a number of active loans offering in excess of 10 per cent. All of these platforms maintain a track record of zero losses for investors.
Moneyfacts finance expert Rachel Springall predicted that more investors could opt for a stocks and shares ISA account this year in anticipation of rising returns.
“The savings market thrived during 2023, thanks to rising variable and fixed rates, and cash ISA rates received a boost,” said Springall.
“Those who are prepared to invest in the stock market may be pleased to see stocks and shares ISAs return growth over the past 12 months, off the back of falls felt the year before. Savers sitting on the fence as to whether it’s time to invest may now feel more confident in the stock market.”
On 5 April 2024, new ISA rules will take effect which will extend the remit of the IFISA and may attract more investors to the tax-free wrapper.
“The most suitable ISA for any saver will depend on their own circumstances,” added Springall.
“The new ISA rules coming into effect from the new tax year could make these more desirable for savers who wish to subscribe to more than one ISA of each type per year.”
