Lightyear, the online savings and investing app, has launched a new product called Lightyear High-Interest Vaults to provide its clients with a market-leading interest rate on cash deposits.
The High Interest Vaults are an easy-access cash investment product with variable rates, and there are separate vaults for deposits in Sterling, Euros and US dollars.
The rates of interest that clients receive on their cash are determined by the overnight deposit rates at the respective central banks. The minimum deposit is £1.00 and there is no maximum amount.
How do they differ from having cash on account?
The High Interest Vaults differ from traditional deposit/savings accounts because there is no fixed term, interest received is calculated daily and paid monthly.
Rather than a deposit account Lighyear’s High Interest Vaults are effectively a short-term fund chosen by Lightyear.
What is your money invested in?
In fact, the money invested into The High Interest Vaults is in turn placed in Money Market Funds or MMFs, run by BlackRock one of the world’s largest asset managers.
For example, sterling deposits invested in the High-Interest Vaults will be placed into BlackRock’s ICS Sterling Liquidity Fund, which seeks to maximise current income consistent with the preservation of principal and liquidity through the maintenance of a portfolio of high quality short-term ”money market” instruments. The portfolio invests primarily in first-tier securities, which include commercial paper, certificates of deposit, floating rate notes, time deposits and fully collateralised repurchase agreements. The investment manager will take into account certain environmental social and governance criteria when selecting investments, as detailed in the Fund’s prospectus.
When depositors put their money into an interest-bearing account at a bank or other institution they are effectively taking on the counterparty risk of that single institution.
However, when they put their money into a Money Market Fund they are diversifying their counterparty risk amongst the organisations whose debt the MMF holds in its portfolio.
Cash invested into the Lightyear High Interest Vaults is put into one of a series of Money Market Funds managed by BlackRock.
Money Market Funds are low-risk short-term investment vehicles that invest in cash, cash equivalents and short-term debt. Think overnight deposits, CDs, short-term treasury bills, and commercial paper etc.
Interest rates are variable, but at the present moment, the Sterling High-Interest Vault is offering a daily rate of 5.29%, which compounds to an annual rate of 5.16%
Lightyear charges fees of 0.25% per annum on funds held in its Sterling vault.
Is it cheaper to buy the fund directly elsewhere?
Investors could, in theory, go directly to BlackRock. However, according to their fund literature, the minimum initial investment required is £500 million.
By using an intermediary like Lightyear they get access to a far far lower minimum deposit and to investment vehicles they couldn’t otherwise address.
Lightyear is based in Estonia but they operate in the UK as an appointed rep of Risksave Technologies, a specialist in compliance and regulatory oversight services for the fintech industry, who are themselves regulated by the UK FCA.
- For investors looking for interest on their free cash they should also view our comparison of investing account interest rates.
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