Launch of new ISA product will be ‘game-changer’ for industry

Consumers are expected to welcome the launch of a new ISA product Photo: Owen Humphreys/PA Wire

INVESTORS in Yorkshire may give a warmer welcome to the new Innovative Finance ISAs due to come in next year, according to one of the UK’s biggest peer-to-peer lending platforms.

According to research for RateSetter, two thirds (66 per cent) of cash ISA holders in Yorkshire and the Humber are unhappy with current interest rate – substantially more than the figure for the UK in general (60 per cent).

Moreover, more than a fifth (22 per cent) of cash ISA holders in the region are interested in moving to the new Innovative Finance ISA (IFISA) – potentially unlocking £24m in extra interest for Yorkshire’s ISA holders in 2016.

The poll was conducted ahead of the IFISA launch in April 2016. IFISAs will be able to hold peer-to-peer loans, which typically pay significantly higher returns than cash savings accounts. For example, in 2015, RateSetter’s one-year product returned an average interest rate of 3.54 per cent. By contrast, the average annual return on one-year cash ISAs in 2014-15 was just 1.47 per cent.

The potential downside is that investors’ capital is exposed to more risk as it is not protected by the Financial Services Compensation Scheme. Even so, RateSetter says that while it is no guarantee for the future, its Provision Fund has ensured that no individual lender has lost a penny to date.

Rhydian Lewis, CEO of RateSetter, said: “Savers in Yorkshire and the Humber have been offered terrible rates for years, and this survey shows they are now reaching breaking point.

“The launch of new IFISAs in April 2016 will put a welcome new option on the table. With the majority of cash ISA holders identifying interest rates as a priority, this will give them the opportunity to increase their returns.