Interest rates are at rock-bottom, here are your options to maximise ISA returns

As an experienced investor, you’re likely feeling disillusioned with the rock-bottom interest rates that are on offer, as well as the increased volatility of the stock market.

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The financial implications of the current Coronavirus pandemic have caused cash savers to experience the worst six months in over a decade, as interest rates slump to as low as 0.1%. 

But this hasn’t stopped UK households from saving more cash than at any time in the last four years. Data from the Office for National Statistics (ONS) shows that households saved 8.6% of their disposable income in the first three months of 2020, compared to 5.4% during the same period last year. 

With the uncertainty that COVID-19 brings, it’s no surprise that the public are placing such importance on having cash reserves. However, as the Bank of England (BoE) dropped their base rate to 0.1% in March and interest rates have plummeted in the aftermath, savers could be seeing their lowest returns to date. 

For those attracted to the tax-efficiency of an ISA, the best easy-access Cash ISA rate on the market at the time of writing is just 0.9%. But for experienced investors willing to take more risks in search of higher returns, there is another option: the Innovative Finance ISA (IFISA).


The potential to maximise returns with an IFISA

First of all, it’s important to note that a Cash ISA and an IFISA are completely different products. The former is a savings product, while the latter is an investment product, whereby your capital is at risk and returns are not guaranteed. 

However, if you’re an experienced investor willing - and able - to take the risks involved with investing into an IFISA, you have the potential to earn high, tax-free returns.

Read more:download the IFISA guide

Against a backdrop of low interest rates and a volatile stock market, alternative investments are a key consideration. 

With an IFISA, investors can hold peer-to-peer loans and debt-based securities - both of which are uncorrelated to the BoE base rate and stock market fluctuations. On top of this, there are a range of assets to choose from - including consumer and SME loans, green energy projects, and property projects. 

But after Rishi Sunak, Chancellor of the Exchequer, reiterated the housing market’s importance in the bounce-back of the UK’s economy in June’s economic update, the property-backed IFISA looks to be a particularly attractive option. 

In the economic update - dubbed the mini-Budget - Sunak revealed the government’s plan for jobs, and stated, “one of the most important sectors for job creation is housing.”


The importance of the property-backed IFISA to investors and the economy

Rebuilding consumer confidence in the housing market in the wake of COVID-19 is imperative to economic growth - as an estimated 250,000 people are directly employed by house builders and their contractors, and moving house boosts the economy with additional spending worth approximately 5% of the house value

Even though Zoopla’s UK Cities House Price Index Report found that housing demand had jumped by 88% in the week after the market reopened, the government has introduced measures to further fuel growth, including cuts to stamp duty. 

Read more:why property has proven itself to be a resilient sector throughout COVID-19

As well as this, Sunak assured that “this is going to be a green recovery with concern for our environment,” and placed an emphasis on the need for environmentally friendly building projects which mean we can build “better, greener and faster.” 

This is where innovative regional house builders and the property-backed IFISA become crucial. 

As an example, the CARLTON Bonds IFISA targets returns of between 4.75% and 7.75% for investors, while providing alternative finance to support SME house builders in delivering much-needed housing. 

In Autumn 2020, Carlton Bonds provided North East-based house builder Homes by Carlton (CARLTON Bonds’ Strategic Housing Delivery Partner) with a £300,000 short-term development loan, allowing them to fast-track the development of their Cathedral Gates scheme in County Durham. 

In addition to creating local jobs, regenerating brownfield land and further boosting a continuously transforming area, Cathedral Gates successfully trialled CoreHaus. 

CoreHaus is a modular housing solution that is able to reduce build costs, build time and construction waste - increasing the delivery of high-quality, affordable housing.

Read more:download our Cathedral Gates case study

Modern methods of construction such as CoreHaus have priority backing in the economic update, with the government prioritising support for firms using innovative approaches to house building. 

It’s clear to see that experienced, regional house builders will play a large role in the post-Coronavirus economic recovery, and they’re more important than ever. So, it could make sense - as an experienced investor - to hold a property-backed IFISA in your portfolio.


Making your money work harder

For experienced investors, the property-backed IFISA could potentially maximise your returns, while minimising risk. And this alternative investment could be particularly beneficial in the current climate.

But the Cash ISA still has its place in the market. Having cash readily-accessible in case of an emergency is important, and even though interest rates are staggeringly low, the Cash ISA still has its tax-free benefit - as with all ISAs.

The good news is that you can have both a Cash ISA and an IFISA, and in order to make the most of your annual ISA allowance (which is £20,000 as of 2020/21), this is a very important consideration. 


Carlton Bonds Brochure

The CARLTON Bonds product is available exclusively to experienced investors who are classified as either sophisticated investors, high-net-worth individuals or professional investors and have the knowledge and experience to make their own investment decisions. Investments are high risk and illiquid, your capital is at risk and returns are not guaranteed. Bonds are not protected by the Financial Services Compensation Scheme (FSCS).