Peer-to-peer lenders offer eye-catching rates, and best of all you can protect returns from the taxman with an Innovative Finance ISA. However, it's vital you understand the risks before investing.
But there’s a lesser-known third option: the Innovative Finance ISA (known as an IFISA), which lets you invest in peer-to-peer lending, tax-free.
In this article, we’ve looked at the biggest IFISA providers, the rates on offer and the fees to watch out for.
Keep in mind that peer-to-peer lending is an investment, with returns not guaranteed and a possibility of losing your investment.
This article is part of a wider series on investing, covering all areas from stocks and shares to buy-to-let, peer-to-peer and alternative investments. Click here to view the full guide.
What is an IFISA?
Peer-to-peer lending began as a way to lend to individuals or businesses without a middleman – traditionally the bank – taking a cut.
In April 2016, the Government recognised the growth of this type of lending by introducing an ISA to make profits and investments tax-free. Like other ISAs, you can invest up to £20,000 per year and only set up one per year.
Many IFISA platforms still allow you to select specific companies, individuals or projects to lend to.
Other platforms will take your money and automatically distribute it over a portfolio of loans, with the objective of maintaining a certain return and risk profile.
Returns and fees vary by the nature of the loans, the work the platform puts in and any security in place.
Crucially, these platforms are not protected by the Financial Services Compensation Scheme, which covers savings and investments should a firm go bust.
Some have ‘provision funds’ to cover investments, although bear in mind they do not guarantee your money back – especially in the case of extreme market conditions.
Table with highest possible rates
Here are some of the most popular providers, ranked by the highest possible rate you can earn.
Please note that rates are not guaranteed and risk does not always correlate with rate: you should research individual providers.
|Provider||Expected return (up to)||Fee||Length of investment||Minimum Investment|
|Abundance||15%||0%||Up to 5 years||£0|
|LendingCrowd||14.25%||1%||Up to 5 years||£20|
|Assetz Capital||11.50%||0%||Up to 5 years||£1|
|Funding Circle||7%||1%||Up to 5 years||£1,000|
|Zopa||5.20%||0%||Up to 5 years||£1,000|
|Landbay||3.54%||0%||Up to 5 years||£5,000|
*After fees – other providers’ expected returns are before fees
Most popular platforms
Here’s a little more detail on the most popular platforms, in alphabetical order.
Abundance has been lending green companies involved in energy generation, housing and other projects since 2012.
When you invest you select the investments, which have varying levels of risk, return and duration.
With over 32,000 investors, who’ve so far earned £62.5 million in interest, Assetz offers a wide range of investments.
With its Quick Access, 30-Day, Property Secured and Great British Business accounts, Assetz invests your money for you, with rates ranging from 4.1% to 6.25%. With the Manual Lending Fund, you select the investments and can set rates up to 11.5%.
The Quick Access and 30-day accounts allow you to withdraw your money, and for all accounts you can sell your investments to other investors.
Assetz has a Provision Fund to cover losses (not including the Manual Lending Fund) although this doesn’t guarantee to cover your money.
So far 79,000 investors have lent £4.6 billion through Funding Circle, earning £250 million in interest since 2010.
With Funding Circle you pick between two options. The conservative option restricts your options to lower-risk businesses; the balanced option includes higher-risk businesses, although they are still judged to be creditworthy.
You can withdraw money as the repayments come in and sell investments to other investors.
Since 2014, Landbay has leant out £251 million in mortgages, meaning your money is backed by assets.
You earn income monthly; you can sell your investment to other investors (with a 0.2% fee for selling fixed rate products).
Supporting businesses, LendingCrowd has leant more than £50m since its founding in 2014.
LendingCrowd has a variety of investment options. With its Growth IFISA and Income IFISA the platform will allocate your funds to at least 20 business loans, both with expected returns of 6% - but the minimum investment is £1,000.
With the Self Select ISA, you pick the loans and can charge up to 14.25%.
With the Income ISA you receive income monthly; you can sell your investments to other investors (with a 0.5% fee for Self Select).
To date, Lending Works has leant over £138 million to individuals.
You can receive income weekly or monthly and withdraw early providing other investors are available, with a 0.6% fee.
Lending Works has a reserve (provision) fund and insurance covering certain events, although neither guarantee you’ll get your money back.
Launched back in 2010, RateSetter has so far leant out over £3 billion to individuals, businesses and property.
With Rolling Market and 5 Year option you earn interest monthly; with the 1 Year option you receive both capital and interest back at the end of the term. To access your money early you have to pay a fee of 0.3% for 1 Year option or 1.5% for the 5 Year option.
RateSetter has a provision fund, although it doesn’t guarantee you’ll get your money back.
One of the oldest platforms, having been founded in 2004, Zopa has leant out over £3.9 billion to individuals and in December received a full banking license – opening the door to savings accounts and credit cards.
You receive income monthly or sell your investments to other investors for a 1% fee.
A note about fees
In the table comparing IFISA providers, with only listed mandatory fees.
With most of these platforms, if you wait for the investment to run its term – which could take years – you won’t have to pay any other fees.
However, should you choose to withdraw money early, or sell your investments to others, you may have to pay a fee. Also, be warned that you’ll need to find investors to buy your investments – you’re not selling them back to the platform itself.
Other IFISA providers
These providers are slightly smaller and more specialist - as always, do your research before considering an investment.
|Provider||Type||Expected return (up to)||Fee||Length of investment||Minimum Investment|
|Basset & Gold||Business||6.70%||0%||3||£1,000|
|Crowd2Fund||SMEs / startups||8.70%||1%||Variable||£0|
|Crowd for Angels||SMEs / startups||Variable||0%||Variable||£25|
|Crowdstacker||SMEs / startups||Variable||0%||Variable||£100|
|HNW Lending||Individuals / business||Variable||0%||Variable||£10,000|
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