Savings inertia – a national missed opportunity
Paul Sonabend, Relendex’s chairman, reveals the scale of the missed opportunity provided by IFISAs…
ALMOST three years after it was introduced, awareness of the Innovative Finance ISA (IFISA) is surprisingly low. According to the most recent HMRC statistics, the UK’s ISA market is worth a staggering £608bn, of which approximately £270bn is held in cash ISA accounts. However, given that the average cash ISA paid out below-inflation returns of under one per cent in 2018, millions of savers across the UK have been watching the value of their savings erode.
Even worse news for savers is that the £337bn being held in stocks and shares ISAs produced negative returns in a year in which the FTSE 100 fell by 12.5 per cent.
So surely the appetite is there for a new type of investment class – one that continues to offer tax-free savings but with less risk than the stock market, and higher interest than a cash ISA.
According to Paul Sonabend, chairman of peer-to-peer property lending platform Relendex, the IFISA fills this gap. Yet the IFISA market was worth a relatively paltry £366m last year, making it around a thousandth of the size of the cash ISA market.
“The IFISA democratizes savings,” explains Sonabend. “You don’t need to be wealthy to get a good return in an IFISA. Everyone gets the same rate of return which means the small investor can earn the same rate as a millionaire.”
In fact, the average investor could stand to make hundreds of pounds per year just by moving their existing ISA savings into an IFISA account. And thanks to the sheer volume of different types of IFISAs on the marketplace, there is likely to be a product that suits everyone, regardless of their risk profile or investment experience. For instance, Relendex offers two types of ISAs – a secured portfolio IFISA with a target return of six per cent, and self-select loans paying an average of 8.5 per cent, all tax-free.
Sonabend explains, “If you have the national average of £17,000 in your cash ISA, earning an average of 0.75 per cent, by switching to a secured IFISA paying an average of 5.75 per cent, you can earn an extra £850 per year.”
So why aren’t more people doing this? Sonabend believes it is down to a lack of awareness and a lack of understanding around the IFISA.
“The exposure and understanding about what an IFISA is is absolutely minimal,” says Sonabend. “And that is something that is a failing of the government. I mean, they introduced it because they wanted to support the P2P industry, but there is no collective body actively promoting IFISAs.”
Clearly there is much more to be done to de-mystify the savings market, to give the IFISA the recognition it deserves and to provide a vital boost to personal savings.
Sonabend concludes: “At Relendex, if we can achieve this, not only will we be boosting savings, but we shall also be giving the SME house-building sector a vital shot in the arm by helping provide the finance they desperately need.”