The alternative banking sector is coming of age. Zopa, which invented online lending between individuals, is 10 years old and has just passed the £1billion milestone.

So-called peer-to-peer lending or the P2P sector is catching on, with £500m exchanged between lenders and savers in the second quarter of 2015.

Total lending on P2P platforms has topped £4bn and will get a huge boost next April when the Innovative Finance Isa is launched, effectively giving the sector a government seal of approval.

Christine Farnish, chair of the P2P Finance Association covering nine leading platforms, said: “Strong growth continues across all parts of the market, reflecting the increasing trust that both lending consumers and borrowers have in P2P platforms. We expect that growth to be further stimulated by the very welcome changes on Isas. This can only benefit both consumers and the wider economy.”

Yorkshire Building Society, the UK's second biggest mutual, is sufficiently worried to have published a report warning that 62 per cent of financial advisers would never use P2P platforms themselves, with 82 per cent saying that their customers 'do not understand the rules' around P2P finance.

But research by Zopa has found two-thirds of its over-55 customers would prefer to invest in P2P than in a traditional annuity for retirement income.

Giles Andrews, founder of Zopa, says: "Savvy consumers in this age group have greater freedom to use their disposable income, with many looking for a reliable, predictable and low-risk return to generate an income from their pension funds.”

Lending Works recently revealed that the amount of capital coming into the platform from older investors has shot up to 70 per cent overall, with over half of its lenders now aged over 55.

The largest platforms have also been beating banks and building societies when it comes to customer satisfaction. Ratesetter, one of the big three, recently came top in a Which? poll assessing customer service across the whole financial sector, scoring 80 per cent among the consumer organisation's 5,000 members compared to the average 54 per cent achieved by traditional providers in a previous poll.

For savers, interest rates vary significantly with higher returns gained through lending to higher risk borrowers. This in turn raises the risk that you may not get some or all of your money back.

If you need to withdraw your funds early, some platforms will charge a fee and some don’t allow early withdrawal of your capital at all. There are sometimes promises of being able to “sell the loan on”, but there is usually a fee and it could take time, so instant access is not guaranteed.

Most deals will tie up your money for at least six months, though a handful of products offer you short-term access. MoneySupermarket lists Wellesley & Co paying 3.5per cent and requiring 30 days notice of withdrawal, but repayment is “subject to liquidity limitations”. Landbay pays 3.5per cent and says the loan can be redeemed at any time providing it can be reallocated, with only a few days notice needed for cashing in tracker rate loans. Ratesetter offers 2.9per cent for a one-month loan – with rates of 4.4 per cent for one-year term and 5.5per cent for three years.

Landbay is only two years old but uniquely secures lending only against residential mortgages and provides full details of its loan book.

Andrew Hagger, independent analyst at MoneyComms, says: “Landbay is currently the only P2P platform that offers a protection fund, auto-diversification of funds, security of tangible assets, and doesn’t permit investing money with a single borrower or project. The returns on offer may be lower, but the overall risk management initiatives to protect customers’ money are the most comprehensive in the market.”

Wellesley, also founded in 2013, lends to property developers, which arguably is a riskier sector of the market, though, like Ratesetter and Landbay, the platform does have a provision fund.

Once you commit to lend for six months up to three years, the rates jump up, with MoneySupermarket listing a 6.9per cent offer from Funding Circle, which lends to businesses. Lenders can pick which businesses they lend to, though there is no provision fund.

Topping that is the seven per cent on offer from Assetz Capital, which lends to renewable energy projects and does have a provision fund.

Lendinvest pays 6.76per cent for lending secured on commercial and residential property. There is no early cash-in and no provision fund, but its terms are only three to 12 months. Like Zopa, Funding Circle, Ratesetter, Lending Works and Landbay, Lendinvest is a member of the trade association.

MoneySupermarket says: “Investing your savings in a peer-to-peer lending scheme can potentially be a good way to get better returns than more conventional forms of saving. However, it should only be considered as part of a balanced investment portfolio and is not for everyone. Peer-to-peer savings are not regulated by the Financial Conduct Authority and your capital will not be protected by the Financial Services Compensation Scheme should things go wrong. It’s important you understand both the advantages and disadvantages before making a decision on whether to invest.”