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SMM REVIEW: Should you board the easyJet Isa paying 7.28%?

easyjet IsaI was so startled to see this advert in the inflight magazine that I brought it home with the rest of my holiday reading.

It wasn’t quite what I had in mind as a souvenir from Mallorca. A ‘lending account’ which pays 7.28% a year? From easyJet? It looked too good to be true so I checked it out.

The account is actually run by easyMoney which is in the same group as the famously orange airline. Launched earlier this year, there are two versions of it: the Balanced which pays 7.28% and the Conservative which pays 4.05% a year.

Don’t assume that this is a cash savings account. The rates are so brilliant because the return comes from investing in short-term loans (less than a year) backed by property.

You can start a Conservative account with only £100 but you must commit a whacking £10,000 to get into the Balanced. Those subscribing £1,000 or more get a membership to easyMoney plus, a discount scheme which gives money off up to 55% across lines from certain retailers such as John Lewis, M&S, Currys PC World and so on. Sadly free Speedy Boarding doesn’t seem to be included.

As an extra incentive, you can hold your account inside a special type of individual savings account (Isa) called the Innovative Finance Isa. This forms part of, not extra to, your overall annual Isa allowance which this tax year is £20,000. Any savings or cash held within the Isa is free of income and capital gains tax.

That’s the upside. Let’s look at the negatives. Firstly, the headline rates are ‘target’ returns and aren’t guaranteed so you could end up getting less.

Secondly, the loans given out are up to 65% of the value of the backing property in the Conservative account and up to 75% in the Balanced account. This allows for a buffer of 35% and 25% respectively, so the marketing blurb says.

However, this relies on the property (against which the loan is secured) retaining the value it had when the loan was granted. In a crash, that may not be the case. Property can also take several weeks or months to sell which means you could be waiting a long time to get back the money you invested.

Lastly, and most importantly, the lending accounts aren’t covered by the Financial Services Compensation Scheme. If something goes wrong, you have very little comeback.

Rates on cash Isas are so depressingly low I can see why 7.28% is attractive. But, for the amount of risk you’re taking, you may as well be in a portfolio of shares for the long term where the return is potentially higher (although by no means guaranteed). For me, this deal doesn’t really fly.

See our SMM guide to investing in funds here.


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Wednesday, 24 April 2019