Sir Stelios’ fintech venture argues investors need ‘alerting’ to the threat of inflation.
The Innovative Finance ISA treads a new path for investors, lending platforms and of course the regulator. The latter, the Financial Conduct Authority (FCA), is very keen to make sure investors know that their capital is at risk when lending money to others through the IFISA. And quite rightly so.
EasyMoney, a recent addition to the stable of platforms offering investors the IFISA, has hit back however saying low interest rate Cash ISAs and savings accounts should `also carry risk warnings to alert savers “to the threat of value being destroyed by inflation”. Cash ISAs carry FSCS protection up to £85,000, IFISAs do not as with Stocks & Shares ISAs and therefore must carry risk warnings that investors’ capital is at risk of full loss.
However, as EasyMoney points out, while investment products require extensive warnings to make it clear that capital is at risk, there is no such requirement for cash ISAs or simple savings accounts whereby the ‘real’ value of a pot of cash is lowered owing to inflation.
EasyMoney says its own research found UK savers lost £32.5bn to inflation last year as a result of low interest rates. Inflation stands at 2.5 per cent while average interest rates on savings were just 0.5 per cent, it says. It argues warnings would enable savers to make “better informed” decisions.
Andrew de Candole, CEO of easyMoney, says investors see cash savings as a ‘safe’ option but too many people don’t appreciate how “excess caution” can harm ‘real’ returns i.e adjusted for inflation.
“The reality is that the value of cash is being destroyed by inflation because it’s typically earning next to no interest in standard ISAs and traditional savings accounts. It’s imperative that savers with low interest bank accounts are made aware that their capital is at risk.”
“After all, investment products must display clear “capital at risk” warnings. It makes no sense not to alert cash savers in a similar fashion. What consumers need is much more information and more choice in the marketplace than traditional banks or even so-called challenger brands are providing. We need a real shake-up of the status quo, and that’s what we set up easyMoney to do.”
EasyMoney launched its two new Innovative Finance ISAs early this year targeted 4.05 per cent and 7.28 per cent annual interest rates.
The two IFISAs offer exposure to multiple property-backed loans secured by a legal charge against at a maximum 65 per cent loan level.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.