Innovative finance Isas aim to woo savers with peer-to-peer lending option

Nearly one in four cash Isa savers would consider investing their money with peer-to-peer (P2P) lenders when a new savings product launches next year, research suggests.

A survey of 978 savers with a cash Isa for peer-to-peer lender RateSetter found that 60% are not satisfied with the current rate they are getting.

Around 24% of savers surveyed said they would be interested in opening a new "innovative finance" Isa.

Set to launch in April, innovative finance Isas will be able to hold P2P loans, which often pay significantly higher returns than cash accounts. P2P lenders act as middlemen, matching people who have some cash to invest with those who want to borrow money.

However, money held with P2P lenders does not fall under the Financial Services Compensation Scheme (FSCS), which protects savers if their bank or building society goes bust, so investors need to bear in mind the risks.

Savers have seen their returns hammered in recent years by rock bottom interest rates, despite the tax benefits that Isas offer.

According to financial information website Moneyfacts, the average cash Isa rate is now just 1.43%. Five years ago, the average rate was 2.2%.

Rhydian Lewis, RateSetter co-founder and chief executive, said the launch of the new innovative finance Isas "will put a welcome new option on the table" for savers.