Unity Mutual launches new type of Lifetime ISA

The mutual is offering a stocks & shares Lifetime ISA (LISA) which guarantees you'll get your capital back and comes with a guaranteed rate of interest for a set period of time – rather than your return directly depending on how well your investment does, like a traditional stocks & shares ISA.

Unity Mutual is a branch of Oddfellows, which is a friendly society owned by its members and customers, rather than shareholders.

Its initial interest rate of 1.25% beats the current top rate cash LISA from Newcastle Building Society, which pays 1.1% – but it is only guaranteed until 5 April 2019, so if it drops after this it may not be as good a deal. 

It's worth noting that as this is a stocks & shares ISA, not a cash ISA, your money will be invested rather than held by Unity Mutual. 

See our guide for more information on how they work and who they're best for.

What is a Lifetime ISA?

Here are the LISA need-to-knows:

• A LISA can be opened by anyone aged 18-39.

• You can save up to £4,000 a year.

• You get a 25% state bonus paid on top (up to a maximum of £33,000).

• You'll pay a penalty if you withdraw the cash for anything other than your first home or before you turn 60.

For first-time buyers, a LISA can be used towards the purchase of a property worth up to £450,000.

If you're using it to save for retirement, you can save in it until the day before your 50th birthday, and withdraw the cash and bonus when you turn 60.

For more details, see our full Lifetime ISA guide.

How is the Unity Mutual interest rate calculated?

Unlike other stocks & shares ISAs, where the amount you earn (or lose) fluctuates depending on how your investments perform, Unity Mutual guarantees your capital and gives a guaranteed interest rate for each tax year.

Any money you pay into the LISA will be invested in Unity Mutual's portfolio of rental properties. In the future, the mutual is also planning to expand its investments to include Government bonds, corporate bonds and equities.

At the moment, the interest rate is based on the expected yield from its rental properties – but Unity Mutual told us that customers are 100% guaranteed to receive the advertised rate for that year, even if yields are lower or higher than expected.

The interest rate is calculated every March, and that rate is then applied for the next tax year, which runs from April to April. 

If the rate is set to drop, you'll be given 14 days' notice in writing, as long as your balance is more than £100.

What are the other features of the new LISA?

Unity Mutual's new LISA can be opened and managed online.           

Unlike other stocks & shares LISAs, there are no management fees, and you won't be charged if you want to transfer out to another LISA provider.

Other account features include:

• It can be opened with a minimum lump sum of £250, or by setting up a monthly direct debit of at least £25.

• Interest is paid daily. 

• You can transfer your LISA in from another ISA provider. 

Remember that as this LISA is technically an investment product, the Financial Services Compensation Scheme would only protect up to £50,000 in the event that Unity Mutual went bust (rather than the full £85,000 for savings accounts).