Innovative Finance ISAs (IFISAs) have maintained average returns above eight per cent per annum for the past four years, despite recent economic volatility, exclusive Peer2Peer Finance News research has found.
For the 2020/21 tax year, the average target return being offered across 32 IFISA accounts was 8.72 per cent.
Due to a lack of historical platform data, just 18 accounts were available for like-for-like analysis across the 12 months of 2020. With this in mind, the average actual return for IFISAs in 2020 was 9.4 per cent.
In 2019, the average actual returns across 17 IFISA accounts was 8.45 per cent. And in 2018, the average actual returns across 16 IFISA accounts was 8.3 per cent.
The IFISA was launched in 2016, but delays in regulatory approvals meant that most peer-to-peer lending platforms were unable to offer their own IFISA products until 2017 or 2018.
These figures suggest that IFISA investments have held their value across the past four years, even amid a period of extreme economic uncertainty.
Peer2Peer Finance News has counted 38 IFISA accounts which are open to retail investors for the 2020/21 tax year. However, some of these IFISA providers only offer the tax wrapper on individual bond products, which are subject to availability. This meant that target returns were not available for all IFISA accounts.
Among the 32 IFISA accounts which shared target returns with their investors in 2020/21, eight were targeting double-digit returns, up to a maximum value of 16 per cent per year. The lowest target return recorded for the financial year was three per cent.
Last month, Peer2Peer Finance News revealed that just 40 per cent of IFISA providers were open to retail investment for the 2020/21 tax year, with big-name providers such as Zopa, Funding Circle and RateSetter missing from the IFISA listings for the first time.
Zopa and Funding Circle have both temporarily closed to retail investors as a result of the Covid-19 pandemic, while RateSetter was acquired by Metro Bank in September 2020 and will no longer accept retail investment.
The IFISA market has also been reduced over the past 12 months due to the closure of several platforms. Octopus Choice, Fitzrovia Finance and The House Crowd are just a few of the former IFISA providers which no longer have a presence in the market and have therefore not been included in the Peer2Peer Finance News research.
However, despite these platform closures, the absence of the former Big Three and ongoing economic uncertainty, dozens of P2P lenders have continued to offer competitive IFISA products with risk-adjusted returns which dwarf the average savings rate and stock market returns.
For example, across the whole of 2020, the FTSE All-Share Index lost 12.46 per cent. According to analysis by Moneyfacts, the average cash ISA returns for 2020 were between 0.19 per cent and 1.37 per cent.
According to a recent study by P2P analyst 4th Way, a balanced portfolio of all P2P accounts would have returned at least 4.5 per cent to investors in 2020, with most investors earning between five and eight per cent.