17th August 2016
Savers have had a torrid time since the financial crisis. From March 2009 through to July 2016, nine years, interest rates in the UK were held at a historic low rate of 0.5%. In the wake of the UK’s decision to Brexit in June, rates were lowered even further, to 0.25% at the beginning of August. It is now no longer tenable for savers to hold cash ISAs due to the paltry interest rates they offer. A move towards them needing to think like investors can allow savers to safeguard for their future, by investing in the Government’s new IFISA, which allows individuals to enjoy estimated gross interest rates of up to 8.7%.
Context on economic outlook
The current economic climate has resulted in the best buy traditional ISA products offering interest rates no higher than around 1.2%. On this basis, transferring funds or retaining funds in a cash ISA will not even allow your savings to grow in line with inflation - normally pegged at 3%.
Conversely, storing funds in cash ISAs will actually result in you losing money for every day in which funds are retained there. The reason for this is that the purchasing power of your cash will diminish due to not being able to keep up with inflation growth.
The interest rate drop to just 0.25% was so significant that Martin Lewis, the UK’s most trust expert on personal finance said:
“The bank of England has today cut the base rate to an historic low of 0.25% this is likely to mean savings rates will fall again. This makes it a key time to review your savings to ditch poor-paying accounts.”
ISA Context
The cash ISA was first introduced in 1999, as a mechanism to encourage people to save for their future. The current year’s allowance is £15,240. Whilst cash is held in the ISA wrapper, the growth on the funds is shielded from tax.
Whilst originally the rates of interest held on these accounts favourable, there are now close to two decades worth of cash ISA allowances accruing virtually no interest.
The IFISA
In the 2015/16 tax year the Government introduced the Innovative Finance ISA (IFISA).
This allows savers and investors to lend their money to growing British businesses through qualifying P2P platforms.
Crowd2Fund’s IFISA is one of just a handful of products on the market allowing savers and investors to do this. It offers returns of an estimated 8.7% APR.
In order for savers to counter against their cash ISA’s reduced purchasing power, a different mind-set is needed to turn them into investors. Savers are encouraged to spread their risk by deploying their funds across a range of different businesses in different sectors, including hospitality, construction and retail.
An additional benefit of using Crowd2Fund’s IFISA, other than the potential of high returns, is to be helping the British economy by aiding the growth of these businesses.
Transfer Your Cash ISA
It is possible to counter against historic cash ISA funds stalling in value by transferring them to an IFSA. It is possible to do this and keep all of the funds in a tax wrapper.
Before doing this it is important to take consideration of the steps below in order to make sure that the funds stay within this wrapper.
Crowd2Fund make the transfer process easy for you and co-ordinate with your old ISA manager.
How To Transfer Your Cash ISA to an IF ISA
Once you have signed up with your new IFISA provider, you will need to complete a form to transfer old funds.
The form is relatively simple to complete, and asks for basic details including information about your old ISA provider and your authority for the transfer of funds.
Once the form has been completed it should take around 15 days to be processed.
Your new provider will be obliged to pay interest if the transfer takes more than 15 days.
There is no limit on the amount of ISAs you can move at any one time but you will need to complete one form for each provider.
You can transfer your all your ISA funds to an IFISA manager and the funds will remain in the tax wrapper which means any earnings from these funds will not be eligible for tax.
Download the form.
