How to benefit from multiple IFISAs
There are only a couple of months left to make use of your ISA allowance before the end of the tax year but you do not necessarily need to choose just one Innovative Finance ISA (IFISA).
Savvy investors are able to open multiple IFISAs by transferring tax-free savings from previous years and it could quadruple the interest you earn – here is how.
Your annual £20,000 ISA allowance can be used in a variety of ways to earn interest tax-free. It can be put in cash ISAs, stocks and shares ISAs or you can back P2P loans using an IFISA. Under HMRC rules, you can only contribute new ISA money to one type of each tax-free account during a single tax year.
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However, there is nothing stopping you from finding a better place for your old ISA money. ISAs from previous years retain their tax-free status but you do not have to stick with old cash ISA rates and can instead transfer it to accounts with more attractive interest rates such as an IFISA.
An IFISA is different to a cash ISA as there is no Financial Services Compensation Scheme protection and the rate is not guaranteed.
But in return for this extra risk, you could earn a better rate and make your old ISAs work order. Analysis by Peer2Peer Finance News has shown that IFISAs returned an average of 9.01 per cent during 2021, while cash ISA savers have struggled to get a typical rate above two per cent since May 2013.
ISA transfers are treated separately to your annual allowance so there is nothing stopping you from opening multiple IFISA accounts just to hold ISA money from previous years where the targeted rates of return could be higher than what you are earning in old cash ISAs.
P2P analysis firm 4thWay suggests this could be a good way of diversifying your P2P investments.
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“You can transfer money from cash ISAs, stocks and shares ISAs and IFISAs that you contributed to in previous tax years into any number of new IFISAs that you like,” the firm said. “That includes any gains you made on money that was contributed in previous tax years.
“Some ISA providers allow you to partially transfer funds you contributed in previous years and IFISA providers usually allow you to transfer in partial transfers.
“This means that if you have, say, £30,000 in a cash ISA prior to 6 April this year, you could open six new IFISAs right now and put £5,000 in each of them. Instant diversification.”