Compare ​Peer to Peer ISAs

What is a Peer to Peer ISA?

A Peer to Peer (P2P) ISA is an ISA account you can hold Peer to Peer loan investments in.

They are also known as Innovative Finance ISAs or IFISAs.

The ISA wrapper protects you from paying tax on the interest that your P2P investments return, and your Peer to Peer investments have the potential to outperform standard Cash ISAs and savings accounts.

However, they come at an additional risk due to how Peer to Peer loan investments work.

How do Peer to Peer ISAs work?

Peer to Peer ISAs work in the same way as any other Peer to Peer investments, just with the added tax benefits of an ISA.

P2P investments lend your money to borrowers who pay it back with interest.

They are just like normal loans but without a bank acting as a middle man. This means you get more of the profits, but also accept more of the risk.

Peer to Peer investment products quote a target interest rate, which is the return rate they aim to meet over a specified time period.

The interest rate is not guaranteed like with a Cash ISA, but it will likely be considerably higher.

You could also lose your money if the borrowers of your P2P loan fail to repay their debts. Or, your money could be tied up for longer than you expect.

Here are some examples of the types of borrowers that your money will be lent to:

• Individuals taking out personal loans for home improvements, medical costs or car purchases
• Companies taking out business loans
• Charities

What are the benefits of a Peer to Peer ISA?

• Better interest rates than Cash ISAs and general savings accounts
• 100% tax-free savings
• No limit on how much you can withdraw
• Invest up to £20,000 for the 2025-26 tax year

Can you lose money with Peer to Peer lending ISAs?

Yes, you can lose money investing in Peer to Peer lending products. Your money is loaned to different borrowers who may default on their repayments or take longer than expected to pay back their debts.

Although your P2P investment provider will aim to mitigate these risks, there is no guarantee you will get back at least what you invest.

Can you make money with Peer to Peer lending?

One of the main benefits of a Peer to Peer ISA is the potential returns on offer via the interest rates.

Compared to a Cash ISA, the interest rates available are much more attractive as long as you are comfortable with the higher risks involved.

What is the best Peer to Peer ISA?

The best P2P ISA for you will depend on some of the following factors:

• The target interest rate
• The length of investment term
• The risk level associated
• The provider’s customer service ratings
• The minimum investment amount

Are Peer to Peer ISAs Safe?

Although your underlying Peer to Peer investments can lose money, the products are regulated and authorised by the Financial Conduct Authority (FCA).

This means that Peer to Peer ISAs must abide by rules and regulations set out by the FCA and treat customers fairly.

That being said, Peer to Peer lending ISAs are not covered by the Financial Services Compensation Scheme (FSCS), like other ISAs are.

The FSCS covers investors for up to £85,000 in the event that their investment provider goes into liquidation. It doesn’t cover the underlying ISA investments, but it does cover the ISA provider should it get into trouble. This is an added level of security that Peer to Peer ISAs don’t have.

What are some alternatives to Peer to Peer ISAs?

The main alternatives to P2P lending ISAs are the other types of ISAs available, as you get the same tax benefits with all these accounts:

Cash ISAs

• Guaranteed or variable interest rates
• Your money cannot go down
• Interest rates are much lower

Stocks and Shares ISAs

• Invest in the stock market via funds, shares and other investment vehicles
• Value can go up as well as down
• Suits long term investments

Junior ISAs (JISAs)

• Opened in the name of a child
• Can be held as a Cash JISA or Stocks and Shares JISA
• Invest up to £4,000 per child in the current tax year

Lifetime ISAs (LISAs)

• 25% free government bonus (kept if used for a first house deposit or at age 60)
• 25% charge for withdrawals outside of these rules
• Can be held as a Cash LISA or Stocks and Shares LISA
• Invest up to £4,000 per tax year

How do I open a Peer to Peer ISA account?

The easiest way to open a P2P ISA is online or via the mobile app for your P2P ISA provider. You can also open an account over the telephone or by post, and you will need to make a contribution via debit card or Direct Debit.