Zopa’s long-awaited innovative finance Isa (Ifisa) will be made available to existing customers on Thursday 15 June, but it won’t be protected by the company’s Safeguard scheme.
The Isa, offering projected returns of up to 6.1%, will initially be made available to existing Zopa customers wanting to invest new money. It will then be possible to move existing Zopa loans into an Isa wrapper from 1 July, and transfer funds from third-party Isas from 17 August.
It is expected that new customers will have to wait two months or longer before being invited to open a Zopa Ifisa, due to expected high demand.
However, following the decision not to include the Safeguard scheme, investors will need to be comfortable with an increased risk of losing money should borrowers default on their loans.
Find out more: Zopa review – see how Zopa compares other peer-to-peer lenders
Zopa scraps Safeguard scheme
All of the UK’s major peer-to-peer lenders have safeguards in place to lower the risk of investors losing money.
Zopa’s Safeguard scheme is a central compensation fund that aims to pay out to lenders whenever a borrower defaults on a loan. This fund is limited, so it could run out if lots of borrowers fail to repay, but it has covered 100% of eligible loans to date.
However, this scheme won’t be offered to Isa customers, nor will it be available to any new investors after December 2017.
Zopa says this will allow it to offer simpler products with better returns.
Find out more: peer-to-peer lending explained – learn about the pros and cons
How to find the best innovative finance Isa
Choosing the best Ifisa should involve more than hunting down the highest expected returns. The protections offered to investors and the risk of losing money should also be considered.
Although there a few smaller providers already offering Ifisas, Zopa became the first major peer-to-peer company to gain authorisation from the Financial Conduct Authority to launch them.
It will offer two savings products in an Isa wrapper.
- Zopa Core, in which your money will only be lent to lower-risk borrowers, offers expected returns of 3.9%.
- Zopa Plus lends your money to a wider range of borrowers, offering expected returns of 6.1%.
Both products are flexible Isas, but carry a 1% fee if you wish to withdraw a lump sum.
There are other IfIsas that may be more suitable depending on your attitude to risk.
The Lending Works IfIsa, for example offers returns of 4.4% over five years, but it’s protected against borrower default, fraud and cybercrime by its ‘Lending Works Shield’ scheme. Meanwhile, Landlord Invest is targeting returns of 12%, but its investments are subject to the volatility of the UK property market.
Find out more: innovative finance Isas explained – find out how this product works
Zopa takes additional steps to launching a bank
Zopa has also taken a major step towards launching its online-only bank, after securing £32 million towards this project from two major investors.
Once it secures its banking licence, the company plans to launch a range of FSCS-protected savings accounts, personal loans, credit cards, car finance, as well as additional peer-to-peer lending products.