As the first Innovative Finance ISA sets out it terms, come April, investors will be able to earn returns approaching 6pc interest on up to £15,240.

Innovative Finance ISAs have grown rapidly in recent years, with RateSetter set to launch its ISA on April 6th where it is expecting a rush of demand due to the higher tax-free returns found from cash ISAs.

How do Innovative Finance ISAs differ from cash ISAs?

The interest rates offered so far are double that of the equivalent cash ISA, so if the full £15,240 limit was put into a Innovative Finance ISA, returns could be £500 more than the traditional cash ISA. With figures like this, it is no wonder peer-to-peer ISAs are looking popular, with Rhydian Lewis, the chief executive of RateSetter commenting:

“Given the potential for significantly better rates on offer, it’s no wonder that one in four cash Isa holders say they are considering opening an Innovative Finance Isa,”

However whilst there might be potential bumper interest rates, there are higher risks involved. Unlike Cash ISAs, they will not be covered by the Financial Services Compensation Scheme. This means there is the potential to lose savings.

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Safiya focuses on business and political stories for UK Investor Magazine. Her interests include international development, travel and politics.