This is a collaborative guest post
Families Need To Change Their Personal Finance Strategies To Become Investors Rather Than Savers
Over the last few years aspirational families have faced a perfect storm of low interest rates, changes in buy to let regulation and an increased cost of living. In order to provide for their future and prosperity families are now having to change their mindset to become investors rather than savers. Savers do not need to be fearful as this creates a unique opportunity, through calculated risk, for families to become more savvy and provide for their children’s future by using innovative products such as the innovative finance ISA (or IFISA).
The precarious economic climate, since 2007, means that interest rates in the UK have now been held at a record low of 0.5% since 2009. From a personal finance perspective, this means that savers are in essence losing money by keeping their cash on deposit. At the very least, in order to maintain purchasing power, cash needs to accrue interest at the same rate of inflation, approximately 3%.
Low interest rates mean that even personal finance products which were once see as competitive are now no longer fit for purpose. The ISA, first launched in 1999, up until relatively recently allowed savers to earn tax free growth on their savings of up to 4%. However, at present the best rates on offer for this traditional product do not rise above 1%.
Families have also been hit by recent changes in buy to let, with the introduction of a 3% increase in stamp duty for second home buyers and the tapering of mortgage interest relief. Property, traditionally a safe haven for families wanting to plan for their future, is now a lot less attractive due to these significantly increased costs.
Crowd2Fund, fully regulated by the FCA, is one of only a few P2P platforms to have been granted a licence to deploy an Innovative Finance ISA (IFISA). This new product, launched in April of this year, allows families to enjoy tax free savings of up to 8.7%. Currently the maximum amount which can be invested per annum is £15,240.
The IFISA works by allowing families to invest a number of high growth and innovative British businesses seeking debt financing. Crowd2Fund carry opportunities across a number of different sectors, many of which are sustainable. Recent examples include Silo, the UK’s first zero waste restaurant, and Carbon Dynamic, a sustainable construction company. The former beat their initial target of £40,000 by 20% in order to scale up their business.
In order to mitigate risk, it is advised that families invest across a number of different companies and sectors in the IFISA. Crowd2Fund allow investors to browse opportunities and invest seamlessly and on the go, via their IFISA app, available on Apple’s IOS store and on Google Play.
The main benefits of families changing their strategy, to become investors rather than savers, is the likelihood of significantly higher returns than holding cash on deposit or in volatile equities, and by benefitting from compounding interest.
Chris Hancock, the CEO of Crowd2Fund says,
“Since launching our IFISA, we have noticed increased interest from young families who are keen to secure their financial future. The traditional ISA, due to low interest rates is no longer fit for purpose due to offering such a poor rate of return. With our IFISA Investors can benefit from returns up to around 8% higher than the traditional ISA products [which are] currently on the market, and at the same time support UK businesses direct, keeping the economy at large competitive and more active. ”
Taking action now to refocus your future will safeguard and provide for the needs of your family.