Be careful of innovative finance ISAs

Savers considering an innovative finance Isa should carefully consider where their money is invested before buying one, the City regulator has warned. The Financial Conduct Authority (FCA) said it has seen evidence that the products are being promoted alongside cash Isas. Innovative finance Isas allow people to save with peer-to-peer lenders in a tax-efficient Isa. Peer-to-peer lenders match up people who have money they want to invest with borrowers. While the potential returns may be higher than with a cash Isa, innovative finance Isas are generally seen as riskier.

In a statement on its website, the FCA said investments held in innovative finance Isas are “high risk”. It said: “These types of investments may not be protected by the Financial Service Compensation Scheme so customers may lose the money invested or find it hard to get back.” Innovative finance Isas work differently to cash Isas but experts still believe they are still a sensible option as a small part of a wider portfolio for some investors – as long as they understand the risks and are comfortable with them.

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