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Market-leading Lifetime ISA launches but with a quirk

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Written by: Paloma Kubiak
07/11/2018
Unity Mutual has launched a Lifetime ISA (LISA) product, offering savers a market-leading 1.25% interest rate.

The new product feels like a cash LISA in that it offers a guaranteed interest rate, but a quirk is Unity Mutual invests deposits in cash, stocks and shares, equities and residential properties as banking regulations do not allow friendly societies to run standard cash ISAs.

This means customers’ money comes under the £50,000 FSCS protection limit for investments, significantly less than the £85,000 limit for cash accounts.

The friendly society will assess the interest rate every March and will either increase or decrease it depending on the performance of the underlying investments.

See YourMoney.com’s Lifetime ISA guide for more on this first-time buyer/retirement savings hybrid scheme.

The minimum opening deposit is a £250 lump sum or a direct debit of £25 a month.

For those depositing at least £1,000 a year over the next five years, Unity offers free life cover up to £5,000.

It allows the following transfers into the LISA (subject to the £4,000 annual limit): Child Trust Funds and Junior ISAs upon maturity at 18-years old, Help to Buy ISAs and existing LISA holdings with other providers.

Insurance director at Unity Mutual, Steve Code, said: “LISAs are a valuable tool for the government to help tackle the problem of young people struggling to get onto the property ladder. They reward committed saving but also have a degree of flexibility too. We think the LISA opens up the opportunity for many young people to save for and buy their first home and we’re glad to be able to do our bit to support that.”

Our verdict

The Unity Mutual LISA rate beats the other three cash LISA providers which offer 1.10% (Newcastle Building Society) and 1% (the Nottingham and Skipton Building Societies).

But Unity’s LISA isn’t a pure cash product, even though it guarantees the rate. The friendly society is in essence investing on your behalf but it says it will carry all the investment risk itself so if the underlying investments underperform, the guaranteed rate will still be paid out.

The return guarantee does add some clout to this offer and you don’t actually need to pick investments yourself, this is handled by Unity.

The interest rate is also set each year for the next tax year so you’ll always know what your money will be earning.

If you do want to take more of an active investing approach with your LISA, there are a number of investment platforms you can choose from, including AJ Bell, Hargreaves Lansdown, Nutmeg and The Share Centre which target higher returns. Though you will be exposing your money to risk.

James Blower, founder of the The Savings Guru, said: “The 1.25% is only guaranteed by Unity until April, after which it is 1%. Given this, for savers looking to use the LISA to buy a house, who are looking to save for up to five years, I’d strongly suggest considering the Newcastle LISA at 1.1% instead. Your savings can’t go down with Newcastle’s LISA and the 1.1% is the best on the market, allowing savers to access the government 25% bonus.”

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