The P2P platform is making the ISA available to existing customers first while new customers will be able to open the product from 1 March onwards.

The average interest rates are between 3% and 6% depending on the length of time the money is invested. Its shortest duration investment is one that rolls over month by month and the average rate is 3.1%. The longest duration is five years and the average interest rate is 5.8%.

One of the key benefits of a P2P ISA is that earnings are tax-free.

RateSetter, which has 50,000 investors and 200,000 borrowers, said it will allow existing ISA money to be transferred to it in April. However, it wasn’t able to confirm whether this will be made available before the end of the tax year (5 April).

It confirms the ISA is flexible which means you can put money in and take it out without losing the tax-free allowance. For example, the current allowance is £20,000. You could put £10,000 into the ISA and then withdraw £5,000, meaning you would still be able to deposit £15,000 into the ISA.

While the total amount lent via RateSetter since launch in 2010 currently stands at £2.3bn, it’s important for investors to be aware that money isn’t protected under the Financial Services Compensation Scheme (FSCS).

The FSCS protects your current account and savings deposits up to £85,000 should your UK-registered bank, building society or credit union go bust.

However, RateSetter has established a ‘provision fund’ where borrowers pay an amount into this buffer scheme. If a borrower missed a repayment, the fund reimburses investors. RateSetter said that to data, every investor has received the returns they expected.

RateSetter’s CEO and founder, Rhydian Lewis, said: “RateSetter’s purpose is to give people the opportunity to earn more on their money. Our ISA makes that opportunity even more compelling because investing is now tax-free.

“Cash ISA savers are frustrated with low interest rates, while inflation is always nibbling away at their money. Stocks & Shares ISA investors have enjoyed good returns recently but may be nervous of market falls, as demonstrated in the last few days. Lending is a third asset class in the middle, offering the potential for higher returns than cash without the volatility of shares.

“With RateSetter’s excellent track record and our focus on the retail investor, we believe our ISA will become an attractive home for people looking to put their money to work.”