Investment firm Lightyear has today launched a flexible cash Isa, This is Money can reveal.
The account’s interest rate is pegged to the Bank of England’s base rate, meaning that it currently pays 4.75 per cent, with interest paid out on a monthly basis.
The account has no minimum deposit.
While the current best-buy cash Isa rate is offered by Trading 212 at 5.1 per cent (which includes a 0.2 per cent 12-month bonus for This is Money readers with a special code), Lightyear says its own offering comes with something that others don’t: a reliable rate.
Speaking exclusively to This is Money, Lightyear’s UK chief executive Wander Rutgers, said: ‘The size of the rate is important, but most of us want to chuck money in and leave it until we want to take it out.
‘You know what the rate is going to do – people want that peace of mind,’ Rutgers said.
Lightyear now offers its cash Isa alongside a stocks and shares Isa and general investing account
Currently paying interest at 4.75 per cent, Lightyear’s rate will rise and fall with Bank of England’s base rate.
‘If it stays the same, which seems to be what people are predicting, ours will stay the same,’ Rutgers added.
The firm said it will notify all of it cash Isa users when the rate changes. The next Bank of England rate decision is set for 6 February.
‘We think the peace of mind with a reliably moving rate might be the thing that pushes people to move to a fintech [from a traditional bank].’
Rutgers added: ‘There’s a lot of talk about fintech disruption so far, but actually only 8 per cent of people have a bank account with a neo bank and everyone else is with the old banks.
‘There’s a huge inertia to leave, and that inertia is costing people a huge amount of money.’
Lightyear’s move into cash Isa space comes as it says savers are missing out on £3.4billion in interest, with the average Isa paying 3.6 per cent. This means the average saver loses out on £188 each year.
For variable rate Isas, the average interest rate is even worse at just 1.8 per cent, Lightyear said, with savers missing out on £481 in interest each year on average.
Some Isa accounts offer competitive rates but are restricted to a limited number of withdrawals each year.
Withdrawing beyond the limit will reduce the rate at which interest is paid.
Lightyear’s flexible Isa comes with no penalties for making withdrawals.
The average rate for instant access savings accounts, where 62 per cent of UK households’ money is kept, is 1.65 per cent.
Data suggests that 70 per cent of Isa holders have them with traditional banks, whose Isa offerings generally come with lower rates than fintechs or investing platforms.
‘At the moment the market is a lottery: most Britons sleepwalk into this lottery by opening an Isa with whoever they’ve been banking with since they were a kid,’ Rutgers said.
‘There’s a real herd mentality where everyone believes the right thing to do is put your money into a big bank, which means people rarely shop around and just accept whatever rate they’re given.
‘So their money goes straight into the pockets of the providers, instead of to them.’
He added: ‘Finance is in the business of trust… there are enough reasons to bank with a neo bank. Removing the reasons for people not to switch is about trust.’
