Savers and investors received more bad news this week as the CPI measure of inflation soared to an almost five year high in August. Driven by rising import costs, petrol, clothing and footwear prices, inflation rose to 2.9% for the month, up from 2.6% in July and edging closer to the 3% level last seen in April 2012. This puts inflation well ahead of the Bank of England’s target of 2%, with the central bank expecting it to reach 3% in October before falling back early in 2018.
Combined with the bank base rate remaining at an all time low, and savings rates being at rock bottom, savers are now seeing a significant negative real return on their cash. To take one example, financial website Moneyfacts recently found that the average easy access Cash ISA currently pays only 0.62% interest. That means savers are seeing their money devalued on a real basis by around 2.2% on an annualised basis.
With the current situation expected to remain practically unchanged for many months, investors continue to have problems in finding places to invest their money in order to make a decent real rate of return.
This problem has been exacerbated by stock markets currently looking vulnerable to a downward correction as high valuations, fears over the global economy, Brexit and North Korea combine to reduce the attraction of stocks. Leon Cooperman, founder of hedge fund Omega Advisors, recently said in an interview with Bloomberg that a market correction could start “very soon.”
But there is an alternative way to make real returns away from the traditional investments of stocks and cash
Launched by the government in April 2016 is the Innovative Finance ISA (also known as the IF-ISA). It enables investors to earn a tax free return on loans and bonds issued by peer-to-peer (P2P) lenders and crowdfunding companies by putting them within the ISA wrapper. These typically take the form of business loans, whereby investors lend their money to companies looking for growth capital.
The main attraction of these financial assets, such as the “crowd bonds” offered by Crowd for Angels, is that the interest rates on offer are higher than on Cash ISAs, balanced by higher risks associated with lending to companies.
To give one example of a crowd bond, telecoms business Phenomenon One Communications, is currently looking for investors through Crowd for Angels. The company has already successfully raised its minimum target amount of £65,000 and is seeking up to £250,000 by issuing a crowd bond and in return is offering interest of 8% p.a., paid monthly, fixed for one year. That’s well ahead of current inflation rates. The minimum investment is £100.
For more information on crowd bonds and Phenomenon One CLICK HERE
Investing in debt pitches through Crowd for Angels (UK) Limited involves lending to companies and therefore your capital is at risk and interest payments are not guaranteed if the borrower defaults. The availability of any tax relief depends on the individual circumstances of each investor and of the company concerned, and may be subject to change in the future.
Please click here to read the full Risk Warning.