Money Alert: Peer-to-peer Isas

The Government yesterday announced a consultation on its plans to include peer-to-peer loans in tax-free Isas.

These loans offer much higher returns to savers than normal deposit accounts, but come with much higher risks.

Savers can get 6-10 per cent returns, compared with around 2 per in savings accounts. The money is lent to small businesses or individual borrowers. But fears have been raised that including them in an Isa could leave people unsuspectingly taking on too much risk.

Of particular concern is the fact that the loans are not protected by the Financial Services Compensation Scheme. That has not deterred P2P fans, who have to date lent £1.6bn through such sites as Zopa, Ratesetter, Funding Circle and ThinCats. The new P2P Isas are expected to be launched to the public next April.

At present, people can invest up to £15,000 in a tax-free Isa, whether in shares, funds or deposit accounts. It is expected that any investments in P2P Isas would have to be included as part of that overall £15,000 allowance.