A financial adviser is predicting a decline in rates on offer through Innovative Finance ISAs (IFISAs) due to the coronavirus pandemic.
John Clamp, chartered financial planner for Bowmore, said investors have been tempted by the higher returns on offer from IFISAs compared with stocks and shares and cash ISAs.
However, he warned the coronavirus crisis could weigh on returns.
“Given the recent market instability, and with property and small business lending taking a hit, there is a greater risk that borrowers on peer-to-peer loans may default on loan payments,” he said.
“With interest rates at historically low levels, and lower yields from bonds, investors seeking higher returns have been attracted to IFISAs by their seemingly high returns.
“Many retail investors are unaware, however, that these investments are often illiquid, and their money may be tied up for some time. This means that anybody wanting to withdraw money may face significant delays.”
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It comes after the latest HMRC data for the 2018/2019 tax year shows £328m was invested in IFISAs from 38,000 accounts.
This is up from £277m invested in the 2017/2018 tax year but there were 49,000 account openings during that year.
The figures take the total invested in IFISAs to £641m across 92,000 accounts.