Early indications are that the Innovative Finance ISA (IF ISA) is serving both the economy and savers.
Forget 3 being the magic number; in personal finance, ISA appears to be the magic word. As most people who follow Abundance will already have seen, since we opened our ISA in November 2016 investment numbers have jumped. In a matter of weeks more than £12 million worth of investments sold out and we now have hundreds of ISA customers eagerly awaiting new opportunities to invest.
In the time between investment offers, those of us in the marketing team have taken the chance to dig into the data behind the Abundance ISA and this is what we found: the IF ISA is bringing people in search of better rates out of cash, and in the process supporting the UK economy.
Here is the information that brought us to this conclusion:
- 76% of the ISA transfers Abundance has received to date have been Cash ISAs.
2. The median value of the Cash ISA transfers received is £6,828. This is an important value, as it tells us that this is most likely money that has been saved into Cash ISAs after the limit on maximum Cash ISA subscriptions was scrapped in 2014/15.
Before then, the maximum one could save into a Cash ISA was capped, starting at £3,000 in 1999/2000 and rising to £5,940 in 2013/14. Even assuming very generous interest rates of 5% AER, £3,000 only just becomes £7,000 over 17 years. There is no way for £5,940 of cash to become £6,800 by 2017.
The Government’s own statistics show that instead of moving into Stocks & Shares, people used the removal of the Cash ISA limit to increase their cash holdings, as demonstrated in the chart below. As such, one can infer that this is new ISA cash from people who increased their Cash ISA holdings after the limit was lifted instead of going in to Stocks & Shares.
3. Every single ISA survey done, as well as official ISA statistics, show that Cash ISAs are vastly more commonly subscribed to than Stocks & Shares ISAs; 5 times more Cash ISAs are subscribed to every year than Stocks & Shares ISAs, and just 26% of people agree with the statement “I try to put my cash into more than one type of ISA per tax year.” Why might this be? Our independent research shows that it is to do with perceived safety – 37% of people expressed agreement with the statement “I think a Cash ISA is lower risk than a normal savings account.”
Abundance is receiving far more Cash ISA transfers than Stocks & Shares.
We can reasonably infer that most of the Cash ISA transfers Abundance is receiving are newer (post-2014) accounts.
Most people have chosen to increase their cash saving following the lift on the savings limit into Cash ISAs instead of moving into Stocks & Shares, perhaps because they see Cash ISAs as a ‘safer’ place for their money. As such, most of the Cash ISA transfers Abundance is receiving are likely from people who do not typically invest in the stock market.
What does all this mean?
In the search for better interest rates, people are taking notice of what the IF ISA offers and moving some of their money out of cash to benefit from it.
On the customer side, the Abundance ISA offer is, quite simply, reasonable investments. Investments that people can understand – both what it is and how it earns a return. Investments that aim for reasonable returns always linked to the risk level of each offer; it is a simple trade: returns that are likely higher than cash rates, which means accepting some risks. And investments in things that do good for our society and the environment.
On the economic side, every pound that goes into investments on our platform is going directly to a project or business that is building or generating something in and for the UK. For the time being this is largely energy, so our investors have funded solar farms, wind turbines, biomass boilers, and liquid power projects. Those energy projects are supporting jobs, decreasing our reliance on foreign fuel imports (which are rising in price), and paying returns to investors. It’s a win-win-win, if you like.
The above, of course, only relates to the Abundance ISA in its specifics. Other IF ISA providers such as Crowdstacker, Lending Crowd, and Crowd2Fund specialise in lending to British businesses, which has many of the same benefits for investors and the economy when moving money from cash to investments.
We would be interested to know whether other IF ISA providers are seeing a similar effect, as this only serves to reinforce the notion that the IF ISA can provide a boost to the British economy in uncertain times. And we would love to hear from customers who have moved from Cash ISAs to an Abundance ISA about their experience.
Part or all of your original capital may be at risk and any return on your investment depends on the success of the project. Investments tend to be long term and may not be readily realisable. Estimated rates of return are variable and estimates are no guarantee of actual return. Consider all risks before investing.