how risky are innovative finance isas

How Risky Are Innovative Finance ISAs & Are They Worth it?

How Risky Are Innovative Finance ISAs & Are They Worth it?


When it comes to investing your hard earned money, naturally there will be many questions that you want answers to, in order to fully understand where your money is going. One of the most important of all these questions is usually: how risky is it?

This is certainly true when it comes to Innovative Finance ISAs (IFISAs), since they offer attractive rewards. As an experienced team of financial consultants, we’ve lost count of the amount of times we’ve been asked ‘how risky are innovative finance ISAs?’. But it is a perfectly good question and one that deserves a good answer, which is why we have put together this guide.

In order to understand the risks involved in IFISAs, we need to have a clear understanding of what they are.


What is an IFISA?


An IFISA “allows individuals to use some (or all) of their annual ISA investment allowance to lend funds through the growing Peer-to-Peer lending market, whilst receiving tax-free interest and capital gains.” (defintion from

Compared with other types of ISAs, there is potential for higher returns because peer-to-peer lending cuts out the middleman (the bank). However, unlike other ISAs, IFISAs are not protected under the Financial Services Compensation Scheme (FSCS). This means if the provider goes bust, you could lose your money.

The more risks you take, the higher the returns are. But what are these risks and are they worth it?


ifisa risks


IFISAs – What are the Risks?


The biggest risks involved are that either the borrower that you lend to defaults on their loan, or the P2P platform goes bust. There is no cover from the FSCS, so neither your capital nor your returns would be guaranteed if either of these happened.

However, there are steps you can take to significantly reduce these risks. This can be done by spreading the investments over several funds and having safeguards in place. Speak to one of our independent IFISA experts if you would like to learn more about how to do this.


Are IFISAs Worth the Risk?


To put it into context, IFISAs are seen as a midpoint in terms of risk and reward between cash ISAs and stocks & shares ISAs. After being first introduced in 2016, investors have generally enjoyed steady returns from IFISAs up to the present day.

Combine this with the fact that most cash ISAs pay returns below the rate of inflation anyway, the answer for many is: yes, they are worth the risk. However, it still pays to invest wisely. In order to ensure that you are fully informed, get to know all of your ISA options before investing. Our team are experts in ISA advice and can point you in the right direction in terms of finding the best IFISA solution for you. Click here to get in touch.




Below are some common questions that we are asked in regards to IFISAs.


What are the IFISA limits?


Every adult can put in up to £20,000 in an IFISA this tax year, but this allowance is shared between all your ISAs. So, if you also contribute to a cash ISA and a stocks and shares ISA, you have to decide how you’ll share this year’s ISA limit. However, the total amount you can earn is uncapped.


How are IFISAs regulated?


In order to provide IFISAs to their customers, peer-to-peer lending platforms are required to have full authorisation from the Financial Conduct Authority (FCA). This is to ensure that protections are in place for customers; primarily lenders/investors, but also borrowers.

FCA authorisation ensures that firms adhere to common rules, and that all services are provided in a clear & fair way to customers. There are also regulations in place regarding the handling of client money and complaints procedures.


Can you transfer other ISAs into an IFISA?


Yes you can, but make sure you are not penalised for doing so by checking for any restrictions with your existing ISA provider. Get in touch if you would like to learn more.


Get in Touch For IFISA Options


If you have any questions at all that are not answered in our guide above, please feel free to get in touch. We have a team of experienced consultants who can answer your questions and inform you about all of your IFISA options.

We can work with you, to plan an investment strategy based on your current financial situation and future goals. It is our aim to ensure that you are getting the best of all your available options. Click here to contact us online or call us now on 01422 897 808.

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