Sponsored post: is your ISA winning the inflation race?

By Stuart Law, CEO and founder of Assetz Capital

With just days to go until the end of the 2018/19 tax year, those that have yet to use their ISA allowance will be scouring the market for the best returns on their investment before the 6^th April deadline.

According to data from the latest Moneyfacts UK Savings Trends Treasury Report, there are currently 415 deals available on the market.

There’s a lot of options to consider, and many might not be thinking about whether their projected returns are beating inflation.

But inflation is a quiet and very real threat to your savings. If your projected returns are not keeping pace, your money will not even be maintaining its value in real terms, never mind increasing it.

With that in mind, we’ve analysed the market to uncover where you can win (and lose) the inflation race this ISA season.

The inflation vs ISA landscape

We recently launched an indicative calculator to help the public guarantee returns on their savings by projecting how much tax they can save when investing through their ISA allowance, and whether their target returns are beating inflation.

The results showed that those in the basic, additional and higher rate tax bands who invest the maximum £20,000 into an ISA this tax year will need a minimum rate of return of 1.94% to beat the current rate of inflation.*

This equates to an effective annual interest rate of 0.00% when inflation is factored in, yielding a projected annual growth of just £0.63 in real terms.

The situation is even worse for 20% taxpayers with non-ISA investments of £20,000, who require a staggering 2.43% to keep pace, with that figure rising to 3.23% and 3.53% for 40% and 45% taxpayers respectively.

Although these bare-minimum rates would offer meagre returns, they actually compare favourably with those provided by many conventional ISA products and investment options available today:

* Correct according to the rate of inflation as of 20^th March.
 **According to the latest Moneyfacts UK Savings Trends Treasury Report.
 ***According to Assetz Capital’s indicative ISA calculator. Based on a deposit of £20,000, held for one year by a basic rate taxpayer. Calculated according to the rate of inflation as of 20^th March.

Innovative Finance ISAs: the ‘third way’

With several tried and trusted products effectively causing people to lose money on their investments when inflation is factored in, investors may have to look elsewhere to guarantee returns on their cash for the foreseeable future.

Many of our investors have already taken advantage of the attractive target rates offered by the Innovative Finance ISA (IFISA), introduced by the government in 2016 as an alternative or ‘third way’ to traditional Cash ISAs and Stocks & Shares ISAs.

IFISAs allows you to earn tax-free returns on your ISA allowance while investing in peer-to-peer (P2P) lending, which involves lending to other individuals or businesses with the help of specialist platforms and their expert teams.

P2P investors have put over £70 million into our IFISA since its launch in December 2017, and collectively earned a total of more than £2.5 million in total gross interest as a result.

Whilst P2P lending is not a form of saving, it is a type of investment that is growing in popularity amongst those who are looking to earn a decent return on their money and who understand the risk.

Capital is at risk with P2P lending and your investment is not protected by the Financial Services Compensation Scheme.

Because P2P cuts out the middle man by pairing those who want to invest directly with individuals or businesses looking for finance, those putting money in are typically offered a fairer rate of return.

For example, with Assetz Capital, you can wrap your IFISA around any of our investment accounts, with target rates currently ranging from 4.1% p.a. to 11.9% gross – all well above the inflation rate as it stands.

There are no fees to lend or withdraw your funds, and you can transfer an unlimited amount of cash from previous years’ ISAs into the account.

But don’t just take our word for it. Carried out in February 2019, our Q1 Investor Barometer showed that 48% of our investors are planning to put the majority of their ISA investment into IFISAs this ISA season, with just 8% opting for Cash ISAs.

With the threat of inflation still looming large, it may not be long until the Cash ISA disappears from our investors’ portfolios entirely.

By weighing up the risks against the potential rewards, you too can eschew the poor returns commonly found in traditional offerings, and benefit from the attractive headline returns provided by the IFISA.

Building your ISA strategy

At Assetz Capital, we believe the public has a right to know whether their ISA investments are increasing, maintaining or losing their value in real terms.

We built our ISA calculator because we felt it was important for savers to understand the risk of inflation to their cash, and to raise awareness of the IFISA as a product that can still deliver attractive rewards.

Ultimately, investors must build an investment strategy that works for them by asking themselves several key questions. These include whether they are happy to effectively lose money in exchange for less risk, or whether they’d allow more risk for greater target returns.

IFISAs have so far been adopted by those ‘in the know,’ and many will undoubtedly opt for the safety of the Cash ISA. If you take time to understand the risks and conduct proper due diligence on your IFISA provider of choice, however, you could win the race against inflation and benefit from healthy rewards as a result in this ISA season and beyond.

For more information on investing with Assetz Capital, visit www.assetzcapital.co.uk/how-it-works/, or call 0207 8701023. Capital is at risk.

This is a paid promotion from Assetz Capital. The views expressed in this article do not necessarily reflect those of loveMONEY.