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Top 10 P2P ISAs (IFSA) Rates Compared 2020

P2P ISAs can have some of the most attractive returns. Investment companies invest the cash from your ISA into P2P lending schemes.
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Author: Edith Muthoni
Last Updated: May 5, 2020
Best Lifetime Cash ISAs in 2020 compared | Learnbonds
Best Lifetime Cash ISAs in 2020 compared | Learnbonds

Peer to Peer (P2P) lenders rank up high on the list of alternative investment companies with the most attractive returns. P2P letters wired into 3 laptopsThis, to a large part, explains why they were recently allowed to host and manage Innovative Individual Finance Savings Account (IFISA) for different investors.

Ideally, these refer to investment companies that in turn invest the cash that you deposit into your ISA account into a peer-to-peer lending scheme. The P2P ISA account, therefore, gets to enjoy all the features of any other ISA including the tax-free deposits of up to £20,000 annually and returns that are capital gains exempt.

Table of Contents

    Funding Circle - Borrowing

    Our Rating

    Funding Circle - Lenders Account
    • Unsecured Business loans from £10k to £500k
    • Rates from 1.9% per year
    • Decision in 5 hours
    • No Fees for Early Repayment
    Funding Circle - Lenders Account
    Other than the fact that investors and returns from these accounts are tax-free, P2P ISAs are not different from the conventional peer-to-peer lenders. 

    How do P2P ISAs work?

    Investing here starts with registering an account with a p2p lender and depositing the amount you want to invest, at which point you can be matched with a borrower or an automated investor tool.A cartoon man standing in front of a red question mark Most will allow for the opening of different types of investment accounts depending on your investment goals. If you want a steady flow of passive income, for instance, you will be better off opening an income account. If your savings are however directed at achieving a set objective, you are better off opening such growth accounts as IRA account.

    Best P2P ISA lending companies: Reviewer’s choice

    REVIEWERS CHOICE

    Account Type

    Income/ Goal Account

    Interest Rate

    7% to 10% p.a

    Initial Deposit

    £100

    Rating

    Visit Now

    Product Details

    • Quick decision made in as little as 5 hours

    Key Facts

    • Specialist Business Only P2P Lender
    • Funding from £10k to £550k
    • £5.8B Lent to Businesses

    Pros

    • Solid reputation of trust
    • Low cases of defaulting and effective recovery processes
    • Above average rate of returns
    • Has a secondary market for better liquidity

    Cons

    • Most loans advanced here are unsecured
    • No defaulter statistics

    Mintos – IF ISA

    Rating

    Account Type

    IF ISA

    Interest Rate

    16% p.a

    Initial Deposit

    £10

    Rating

    Visit Now

    Product Details

    • One of the most promising P2P ISAs with interests of up to 16% p.a

    Key Facts

    • Speedy loan repayment of around 6 months
    • Wide range of investment opportunities
    • Only invest in liquid businesses

    Pros

    • Have some of the highest interest rates
    • Most loans here are secured
    • Comes with auto-invest option

    Cons

    • Lacks a proper borrower screening procedure

    Funding Secure

    Rating

    Account Type

    IF ISA

    Interest Rate

    16% p.a

    Initial Deposit

    £25

    Rating

    Visit Now

    Product Details

    • Most attractive to investors looking for lowest default rates

    Key Facts

    • Invest as low as £25 and earn up to 16% in annual interests
    • Guaranteed liquidity thanks to their secondary market
    • Strict borrower screening keeps default cases near zero

    Pros

    • Most loans advanced here are secured
    • Dedicated support team available on multiple channels including web-live chat
    • Lowest lifetime default cases at 0.2%
    • Secondary market eases liquidation

    Cons

    • Investor funds not protected by FSCS

    Crowd2Fund

    Rating

    Account Type

    IF ISA

    Interest Rate

    15% p.a

    Initial Deposit

    £10

    Rating

    Visit Now

    Product Details

    • Secured loans to small businesses guarantee investment protection

    Key Facts

    • Their in-house insurance scheme will indemnify you in case of default
    • Stringent screening and secured loans shield you againist defaulters
    • Invest as low as £10 and earn up to 15% interest p.a

    Pros

    • Stringent borrower screening
    • Provides chat options between investors and borrowers
    • Runs an in-house insurance scheme to sought you in case of defaulting

    Cons

    • Limited range of borrowers
    • Not FSCS insured

    CapitalRise – IF ISA

    Rating

    Account Type

    IF ISA

    Interest Rate

    12% p.a

    Initial Deposit

    £25

    Rating

    Visit Now

    Product Details

    • Invest in real estate and have underlying properties act as security

    Key Facts

    • Invest in the highly-lucrative real estate industry and earn up to 12% interest p.a
    • Get to invest in single or multiple real estate projects
    • Strict borrower screening weeds out unsafe investments

    Pros

    • Most loans here are secured with reasonable loan-to-value ratios
    • Have a bad debt recoverable rate of 0.0% implying they haven’t lost any of their investor’s funds
    • Attractive initial deposit amount starting from £25
    • Features an automated investment tool and a secondary market

    Cons

    • The auto-invest feature is sluggish and takes time before deploying your funds
    • Their interest rates are gradually falling

    Why should you consider investing in IFISA?

    • Sheltering most of your income/savings from taxation, legally:  Any amount of money you make as salary, business income, or even shares and equity investments are subjected to income and capital gains taxes. What if you could avoid paying taxes, legally, and invest these would-be taxes? P2P ISAs make it possible to shield up to £20,000 every year.
    • 100% passive income: You should also consider investing in P2P ISAs if you are looking for a 100% passive source of income. Most of the P2P lenders have an auto-reinvest feature on their platforms that allows for the instant redirection of your returns as soon as they are paid thus helping speed the growth of your principal amount.
    • Growth account: This refers to a type of investment account offered by a P2P ISA account provider that prioritizes the growth of your principal amount and not generating you steady monthly incomes. Most of your returns on the original principal amount will, therefore, be re-invested into new loans as soon as they are realized.
    • Huge returns: Bank’s savings accounts are no longer an option for any investor. The volatilities, high management fees, and the demanding nature of the stock and equity markets are also making it unattractive, leaving the P2P ISA lenders that offer up to 15% returns on investment.
    • Low management fees: The annual administration fees for most P2P ISA lenders start from 0.25% and have little effect on your overall earnings when compared to such other investment services as a full-service brokerage that charge up to £100 per trade.

    What are the pros and cons of p2p lending?

    Pros

    • Fee-free deposits and withdrawals
    • Ease of investments diversification into different loans
    • Transactions are wholly online implying that no paperwork or bureaucratic processes when depositing or withdrawing your funds
    • You don’t need to report gains from IFSASs when filing your annual tax returns
    • Married and civil partners can open individual accounts to max out tax benefits

    Cons

    • Your investments aren’t insured and most lenders don’t require security
    • Inherited IFISA gains are subjected to inheritance tax
    • Some lenders deliberately frustrate the inter-company transfer process

    Criteria used to come up with the best p2p ISAs

    In a sea of P2P ISA lenders, each with their own set of unique features, how did we arrive at the conclusion that listed below are the best in the peer to peer lending industry operatives? What criteria did we use in vetting all these Innovative Finance ISA lending service providers?

    • The annual average rate of return
    • Availability of secondary market
    • Trading cost and management fee
    • Duration of loan repayment
    • The borrower screening process
    • Number and types of accounts supported on the platform
    • Lender reliability, regulation, and reputation

    Best P2P ISA lending companies

    1. Funding circle | 7%-10% annual returns

    Established in 2010, Funding Circle is arguably the largest and one of the most reputable peer-to-peer ISA investment platforms in the country. You can open an income or goal account here and invest from as low as £100 and expect returns ranging from 7% to 10% in annual returns.

    In a bid to minimize the risks your investments are exposed to, the P2P lender with only advance cash to small and medium enterprises that have been in operation for the past two years, have enough cash flow and a credit score of above 640 points.

    The lender has also made significant strides in moving the company towards being beginners friendly and among the leading 100% passive income companies through the introduction of the automated reinvestment features. Similarly, the introduction of the secondary market to a market whose instruments aren’t listed with the exchanges goes a long way in guaranteeing the liquidity of its investments.

    Our Rating

    • Solid reputation of trust
    • Low cases of defaulting and effective recovery processes
    • Above average rate of returns
    • Most loans advanced here are unsecured
    • No defaulter statistics

    2. Mintos | Upto 16% annual returns

    With a minimum investment of £10, possible return on investment of up to 16% annually and having implemented such risk avoidance techniques as only investing in the relatively fluid SMEs, Mintos comes off as one of the most attractive P2P lenders.

    More reasons that ensure the company makes it to our list of best P2P lenders include the fact that they have a large pool of loans and investment options that allow for diversification and minimize risk. Loans here also have some of the fastest turnaround time of between 6 and 18 months.

    Our Rating

    • Have some of the highest interest rates - Upto 16%
    • Most loans here are secured
    • Has an auto-invest option
    • Lack of a proper borrower screening procedure

    3. Funding Secure | Upto 16% annual returns

    Investments on Funding secure P2P ISA lending platform start from as low as £25 and carry the possibility of winning as much as 16% per annum. Borrowers here have to pass through a rigorous vetting process to weed out potential defaulters. Plus it will only give out secured loans, effectively pushing the possibility of losing their investor’s money to defaulters to almost nil.

    You also stand to gain a withdrawable cash bonus should you invest more than £1,000 in a single deposit.

    • Most loans advanced here are secured
    • Dedicated support team available on multiple channels including web-live chat
    • Lowest lifetime default cases at 0.2%
    • Investor funds not protected by FSCS

    4. Crowd2fund peer to peer lending | Upto 15% return per anum

    Crowd2Fund is yet another peer to peer lending site that specializes in offering business loans to SMEs and promises up to 15% in gross returns on investments. In appreciation of the fact that the lender isn’t FSCS secured they have taken several risk avoidance measures including only issuing loans to small enterprises that agree to secure the loan against the business or director’s assets.

    The minimum investment here is set at £10. The company also features an auto-reinvest tool to help accelerate the growth of your loans as well as the secondary market where you can dispose of your investments in case of emergencies.

    • Stringent borrower screening
    • Provides chat options between investors and borrowers
    • Runs an in-house insurance scheme to sought you in case of defaulting
    • Limited range borrowers
    • Not FSCS insured

    5. Capital Rise Innovative Finance ISA | 12% return per anum

    CapitalRise is an upcoming peer-to-peer lender that however specializes in lending to businesses that offer different types of assets as security. Investing here will however set you back £1,000 with the average annual return on investment averaging 12%. And while CapitalRise is considered a P2P lender, it is also biased towards property investments with its founders vouching for virtually every property listed on their site that requires peer funding.

    They even promise to invest in every project they drum up support for as a show of the amount of faith they have in these projects. The upside to this is that funds are secured by the property with the downside being the fact that they are one of the most illiquid P2P sites out there.

    • You get to invest alongside company founders
    • Considerably high return on investment
    • Supports inter-lender transfers
    • One may consider their £100 initial deposit funds quite prohibitive

    6. Assetz Capital IFISA | 7% returns per anum

    Assetz Capital is a P2P lending company that connects investors with small businesses and property companies looking for short to medium term cash advances. By investing here, you give Assetz a pool of resources that they can draw from when lending to these SMEs and property companies with the promise of receiving above 7% interest on your investments annually.

    Advances to these businesses are secured by business assets, guaranteeing that you won’t lose your deposits even if the borrower defaults. We also like the fact that the Assetz platform features an automated investment tool that helps beginners decide where to invest your money.

    • Most loans here are secured with reasonable loan-to-value ratios
    • Have a bad debt recoverable rate of 0.0% implying they haven’t lost any of their investor’s funds
    • Attractive initial deposit amount starting from £25
    • The auto-invest feature is sluggish and takes time before deploying your funds
    • Their interest rates are gradually falling

    7. RateSetter IFISA | 6% returns annually

    RateSetter’s uniqueness is in its ability to automate the P2P lending system. Here, you don’t have to struggle with finding borrowers that meet specific requirements, you only need to create an account and deposit cash and the automated site will find the best match for your investments.

    And you can start by investing as little as £10, or £1000 if you hope to enjoy the promotional £100 cash back. Either way, your investments here earn you up to 6% annually. What we also found to be even more interesting about the lender is their £20 million buffer fund directed towards compensating the investors in case their borrowers' default.

    • Significant buffer fund to guard against defaults
    • Automated investing makes it friendly for beginners
    • Relatively high returns compared to most other conventional investment vehicles
    • You can’t choose who you lend your money to

    What should you look for when looking for the best IFISA?

    • Liquidity: Before committing all, or a significant portion, of your savings in an IFISA account, check their liquidation process. If you want to maintain quick access to your invested cash in the case of emergencies, consider investing in P2P sites with secondary markets.
    • Minimum investment:The government has capped maximum allowable investment at £20,000/yr. The P2P lenders on are however free to express their discretion in determining the lowest minimum deposit allowable on their platform. How much disposable income do you have and what is your preferred P2P lender’s minimum deposit.
    • Reputation and rate of defaults: What steps has your preferred P2P lender been using to screen borrowers. For instance, do they depend on the conventional credit score or do they have an in-house screening process?
    • Availability of secured loans: Considering that most of these P2P ISA lenders aren’t insured, you stand to lose your initial deposit should the borrower default on your loans. It is therefore imperative that you check whether your preferred lender requests security guarantees from borrowers before depositing your funds therein.
    • The course of action in the case of loan default: What follow up measures (if any) has your preferred IFISA lender put in place to recover loans from defaulters? Only invest with lenders who offer secured loans or have put in place a practical loan recovery processes.

    Bottom line

    We all have different priorities, especially when evaluating what others consider viable investment opportunities. Some of us are concerned about the security of the investment, others about the rate of returns, and even some only care about its liquidity. And these fears and concerns play a crucial role in influencing our definition of best. In appreciation of this fact, our list of the best peer to peer lending sites that support IAS accounts seeks to address these concerns to include platforms with the highest rates of return, most fluid liquidity, most feasible safeguards against defaults, and passive income guarantee. You just have to figure out your investment priority and match it with one of the lenders above.

    Funding Circle - Borrowing

    Our Rating

    Funding Circle - Lenders Account
    • Unsecured Business loans from £10k to £500k
    • Rates from 1.9% per year
    • Decision in 5 hours
    • No Fees for Early Repayment
    Funding Circle - Lenders Account

    Glossary of ISA Terms

    Trading Platforms Glossary
    Cash ISA

    A cash ISA is a form of Personal Savings Allowance that works like ordinary savings account safe for the fact that you don’t pay tax on interests earned. It is tax-free savings account for UK citizens. The maximum you can invest in this ISA for the year 2020 is £20,000

    ISA Glossary
    Stock and Shares ISA

    A share and stock ISA is a tax-free investment account provided by a brokerage that lets you invest in a wide range of securities including individual shares and stocks, trusts, and funds. Tax-free means that you don’t get to pay dividend tax or capital gains tax on the shares and stock incomes. The maximum you can invest in this ISA for the year 2020 is £20,000

    Trading Platforms Glossary
    Innovative Finance ISA

    Innovative Finance ISA is a tax-free investment account that lets you invest in the peer to peer lending platforms. The maximum you can invest in this ISA for the year 2020 is £20,000

    ISA Glossary
    Junior ISA

    A junior ISA is a tax-free and long term Child Trust Fund that a parent or guardian can open for their underage children. A 16-year old can also open a Junior ISA but will only access the funds therein once they turn 18. The maximum you can invest in this ISA for the year 2020 is £4,368

    ISA Glossary
    Property ISA

    A property ISA is simply a share and stock ISA that will only invest in residential real estate properties. It is a share and stock ISA that buys solely into residential property portfolios.

    Trading Platforms Glossary
    Lifetime ISA

    A lifetime ISA is a savings account available to individuals between 18 and 40 years who are looking to save for a comfortable retirement. A Lifetime ISA account holder can deposit £4,000 into the account for 2020, and with every contribution, the government tops it up with a 25% bonus. You will not be able to contribute to the ISA once you reach 50 years and the funds can be used for retirement or re-channeled towards purchasing your first home.

    ISA Glossary
    Easy Access ISA

    An easy access ISA is simply a form of cash ISA that makes room for regular withdrawals of earned profits. It is mostly associated with cash ISAs that pay variable terms and allows you to withdraw the tax-free income gained here regularly. The maximum you can invest in this ISA for the year 2020 is £20,000

    ISA Glossary
    Fixed-Rate ISA

    A fixed-rate ISA is a form of Cash ISA that pays fixed interest rates on savings. The funds in the account have to be locked for a predetermined period of time – usually between 1 and 5 years- with premature withdrawals attracting heavy penalties.

    ISA Glossary
    Retirement ISA

    A retirement ISA is a savings account available to individuals between 18 and 40 years who are looking to save for a comfortable retirement. A retirement ISA account holder can deposit £4,000 into the account for 2020, and with every contribution, the government tops it up with a 25% bonus. You will not be able to contribute to the ISA once you reach 50 years and the funds can be used for retirement or rechanneled towards purchasing your first home.

    ISA Glossary
    Help-To-Buy ISAs

    A Help To Buy ISA is a special saving account designed by the U.K. government to help its citizens save for a mortgage deposit for their first home. You can only save up to £200 per month into the help to buy ISA with the government topping you up with an additional 25% bonus. Plus, help to buy ISA is only available to individuals and couples looking to buy their first home.

    FAQs

    What is an IFISA?

    Innovative Finance Individual Savings Account (IFISA) is a relatively new aspect of savings that authorizes the investment of funds held in tax-free ISA accounts into such innovative and relatively unexplored investment grounds as the peer to peer lending marketplace.

    Who can open an IFISA account?

    IFISA is an individual account implying that anyone above the age of 18years and a resident in the United Kingdom (not necessarily a citizen) can open this tax-free savings and investment account.

    What is the difference between an IFISA and cash ISA?

    The primary difference between these two is that cash ISAs are predominantly used to hold an individual’s savings while IFISAs allow for the investment of these deposits. Cash ISAs present you with limited to zero chances of losing your money as it is tucked well away from any risky market while the IFISA are invested into peer-to-peer networks that often don’t ask for securities for their loans thus exposing you to the possible loss of your savings should unsecured borrowers default.

    Where do IFISA accounts invest their resources?

    Most have concentrated their efforts in the peer to peer lending markets where their cash if often lent out to individuals as personal loans or small and medium enterprises that cannot access bank loan services.

    Is my investment secured?

    It depends on your choice of peer to peer lending company. If you invest with LendingClub, for instance, you stand to gain a high rate of return but your funds are unsecured. RateSetter, on the other hand, promises relatively lower interest rates but promises to fund your account from their buffer fund should the borrower default.

    What is the minimum deposit required to open an IFISA?

    This too is highly dependent on your choice of peer to peer lending ISA service provider. Some will only require £1 while others demand a £1000 deposit to activate your investor account. Others have special cashback promotions aimed at encouraging more substantial initial deposits.

    What is the different between IFISA and conventional P2P lenders?

    They have such similarities as attractive returns compared to other investment options plus they target similar clients, individuals, and SMEs. The only difference between them, however, is the fact that IFISAs are tax-free while the conventional P2P services aren’t.

    When can I withdraw money from my IFISA account?

    If you sign up for an income account with any IFISA, your interests will be kept separate from the principal amount and made available for withdrawal as soon as it is received. In the case of emergencies that require disassembling your investment, however, you might want to contact the lender asking them to buy the loans back or sell your investments in a secondary market. Or you can just wait until the borrower fully pays back after which the investment considered mature and available for immediate withdrawal or re-investment.

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    Edith is an investment writer, trader, and personal finance coach specializing in investments advice around the fintech niche. Her fields of expertise include stocks, commodities, forex, indices, bonds, and cryptocurrency investments. She holds a Masters degree in Economics with years of experience as a banker-cum-investment analyst. She is currently the chief editor, learnbonds.com where she specializes in spotting investment opportunities in the emerging financial technology scene and coming up with practical strategies for their exploitation. She also helps her clients identify and take advantage of investment opportunities in the disruptive Fintech world.

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