Ratesetter Innovative Finance ISA
RateSetter ISA 5 Year
Ratesetter operate a provision fund to act as a buffer against borrower defaults. The Provision Fund has a 100% track record, with every investor receiving back every penny they invested, but it does not provide a guarantee. Your capital and interest are at risk if the Provision Fund is depleted by increased borrower defaults.
Target Rate6.0*% p.a.
New investor offer: £100 bonus when you invest £1,000+.
*5.7% annualised rate is the 30 day average on the 5 Year market on the 01/01/2019.
Ratesetter’s innovative finance ISA (IFISA) offering hit the market in February 2018.
The peer-to-peer platform waited in suspense before a regulatory nod from the FCA in October 2017. It could then move forward with launching its own rendering of the pioneering new IFISA product.
- Ratesetter are currently offering a £100 bonus for new investors.
- Sep 2018 – Ratesetter state that their ISA has had £130m invested in just eight months.
- Tax-free returns of 5.4% possible with the Ratesetter ISA.
You can read more about the company or find out more about their ISA below.
As one of the major peer-to-peer platforms, investor interest in Ratesetter’s ISA offering is marked.
Ratesetter investors can choose from its existing range of products, with terms ranging from one month to five years – with funds going to personal, business or property borrowers.
As per Ratesetter’s unique selling point, investors can accept the interest rate set in the markets, or set their own. The standard ISA allowance of £20,000 per year applies.
As it stands, Ratesetter’s provision fund holds over £22 million, specifically to ensure that all individual investors receive the expected returns.
Whilst this is a type of security in the absence of protection from the Financial Services Compensation Scheme (FSCS), investors should take note that the fund is completely at Ratesetter’s discretion, and not a guarantee for the future.
Nevertheless, the fund has ensured that of its 52,216 individual investors, not one has been caught short. The firm uses a ‘provision fund coverage ratio’ to make sure lenders’ money finds its way back to them. It is currently calculated at 117 per cent per investor.
“A Coverage Ratio greater than 100% means that all expected claims should be covered with money to spare,” the firm states on its website. The fund is financed by borrowers, who pay into it via a risk-adjusted fee. This fee goes into a separate company to help ring-fence the money from any other uses.
In an aside to the provision fund, Ratesetter necessitates that some borrowers provide security against their loans such as properties, cars or financial assets. Upon default, it can use these to recover any outstanding debt. The current estimated value of these assets stand at £144 million, held against £118 million worth of loans.
Ratesetter automatically distributes your money to borrowers and you can choose to automatically re-lend your loan income, although if you’ve set your own rate, it is important to be vigilant – the platform won’t increase your rate when the market rate rises.
Ratesetter has a ‘sellout’ feature which allows you, the investor, to either access your money early, or reinvest in longer term markets. There is usually a cost for doing so, which varies depending on the terms of your investment.
It is straightforward to apply to the platform’s current products. You are required to provide your personal and bank details and agree to terms and conditions, and then choose your product, make a deposit and provide final confirmation.
Another bonus is the platform’s flexibility. They state that it is possible to withdraw and replace funds in the same tax year without affecting your ISA allowance.
Although rates may not be as high as some of the other platforms, the provision fund does provide some peace of mind to investors, and the automatic diversification mean ease of use for busy investors.
Updated: Wednesday, December 5th, 2018