When most people think of ISAs, they picture Cash ISAs or Stocks and Shares ISAs. But there’s a lesser-known option that blends investing with lending—and it could offer higher returns if you’re comfortable with a bit more risk. Enter the Innovative Finance ISA, or IFISA.
🧩 What Exactly Is an IFISA?
An Innovative Finance ISA allows you to invest your annual ISA allowance (currently £20,000) into peer-to-peer (P2P) lending or debt-based crowdfunding—and earn interest tax-free. Instead of saving money in a bank or investing in the stock market, you’re lending directly to individuals, businesses, or property developers via online platforms.
💡 How Does It Work?
You choose an FCA-regulated IFISA provider, deposit funds, and select lending opportunities. These might include:
- Personal loans
- Business loans
- Property development finance
- Green energy projects
In return, you receive interest payments—typically higher than those from Cash ISAs. But remember: returns aren’t guaranteed, and your capital is at risk.
⚖️ Pros and Cons of an IFISA
| Pros | Cons |
|---|---|
| Tax-free interest | Higher risk than Cash ISAs |
| Potential for higher returns | Not covered by the FSCS |
| Diversification beyond stocks and cash | Illiquidity—your money may be tied up for years |
| Direct impact—fund real-world projects | Platform risk if the provider fails |
🛡️ Is It Safe?
Unlike Cash ISAs, IFISAs are not protected by the Financial Services Compensation Scheme (FSCS). That means if a borrower defaults or the platform collapses, you could lose money. However, many platforms have reserve funds or risk mitigation strategies in place.
🧭 Who Is an IFISA For?
An IFISA might suit you if:
- You’re comfortable taking on more risk for potentially higher returns
- You want to diversify your ISA portfolio
- You’re interested in supporting UK businesses or property projects
It’s not ideal if you need quick access to your money or prefer guaranteed returns.
🧮 How to Get Started
- Compare IFISA providers—look at fees, minimum investments, and track records.
- Choose a platform regulated by the FCA.
- Open an IFISA account and transfer funds (you can transfer from other ISAs too).
- Select your investments or let the platform auto-diversify for you.
Final Thought:
The Innovative Finance ISA is a powerful tool for those seeking tax-free returns outside the mainstream. But like any investment, it pays to do your homework
