Do you want a third ISA?
By Rhydian Lewis | Mon 30 Jun 14
By Rhydian Lewis | Mon 30 Jun 14
Whilst the headline news of today is your ISA allowance has increased to £15,000, the big question is how you plan to use it?
The reality is the options haven’t changed. You either have low risk, low performance cash or high risk high performance stocks and shares. There’s no middle ground.
Or is there?
The upcoming inclusion of peer-to-peer in NISAs has the potential to offer savers that much needed middle ground between Cash and Stocks. A relatively low risk, reasonable return option. A “Third ISA” if you will.
Extract from March 2014 Budget:
“1.169: To further increase the choice that ISA savers have about how they invest, ISA eligibility will be extended to peer-to-peer loans”
RateSetter’s April 2014 survey of MoneyWeek readers supported this idea, with two thirds of people saying that they are more likely to use peer-to-peer when it is included in an ISA wrapper.
But what’s your view?
A “Third ISA”?
While ISA allowance increase takes effect from 1st July this year, the details of how peer-to-peer is to be included in ISAs is being worked on as we speak. We are hopeful it will be live in time for the next ISA season next year but let’s see – there is a lot to work through.
RateSetter is involved in the ongoing conversations with industry and HM Treasury to help define how peer-to-peer in ISAs will work. To facilitate the process, a government consultation paper is scheduled for this summer as well.
One piece of good news is that it has been agreed in principle that the peer-to-peer platforms like RateSetter will be able to become “ISA Managers” which means we can offer our peer-to-peer product directly to customers. HM Treasury is keen for it to be available from third parties as well (e.g. fund supermarkets) which makes absolute sense but we are delighted that we will be able to offer it direct as well – as you will know, we believe in keeping things direct!
Of the many things being debated is the interesting idea of a new “Peer-to-Peer ISA” being created. A “Third ISA” if you like, alongside the existing Cash and Stock & Shares ISAs. We think this is potentially very exciting – a new alternative between the polarised worlds of low yielding Cash ISAs and the investment risk of a Stocks & Shares ISA. Some see RateSetter as being more like a Cash product but, as you all know, peer-to-peer isn’t covered by the FSCS and so, rightly, should not be classified as a Cash ISA – but as you also all know, you don’t get much value from a FSCS-backed cash account and so for those of you looking to get your money working harder you need to look at alternatives such as peer-to-peer.
Currently you can only buy one Cash ISA and one Stocks & Shares ISA in any given tax year. Hence, HM Treasury’s idea of exploring a Third ISA which would allow savers to have some cash, some investments and then some peer-to-peer – which sounds like a very attractive mix to us for any saver looking for a diversified portfolio of “rainy day” money, some investments for long term capital growth and then some good income yield from peer-to-peer.
We are always keen to keep our customers up to date on industry developments and keep them in the debate. So, in advance of the summer consultation, we were keen to hear your views on the Third ISA idea? We are calling on the knowledge of the “crowd” to inform the debate – so, please use the comments section below to share your views. Thank you.
Update: the peer-to-peer ISA is here! Click on the IFISA guide to learn more.
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