A suburb of Leeds will launch what is thought to be the UK’s first local investment fund, offering investors a higher return on their money than most savings accounts.

From Monday, anyone with at least £200 can buy shares in a fund set up to improve Headingley, a student-heavy neighbourhood two miles north-west of Leeds city centre.

Investors are told to expect a 2% annual return on their investment as early as next year – double the rate offered by most banks on tax-free Isas.

The money will be invested in a range of local projects, including a much-loved community centre and an initiative to buy up local houses to rent out at below-market rates.

The fund, which will operate via ethical crowdfunding platform Ethex is open to anyone. The minimum investment is £200 while the maximum is £100,000.

The Headingley Investment Fund is the brainchild of the Headingley Development Trust (HDT), which was formed by local residents in 2005 to develop enterprising initiatives that promote and sustain a vibrant local community.

It set up a popular farmers’ market, which has been held monthly since 2006, and the Headingley Fowl Co-op, which gives members organic free range chickens and provides a secure market for a local organic farmer. It also supports a table tennis club, a community orchard and Headingley Cafe Scientifique, a monthly gathering to debate the latest ideas in science and technology.

The fund is being established by the trust to support its goal of creating “a sustainable, balanced community that is welcoming and neighbourly, offers a good mix of housing, has a successful and diverse local economy, and is an attractive place to live, work and visit”.

According to its business plan, the aim is to use primarily local money to support enterprise, housing and the success of its flagship enterprise, Heart (the Headingley Enterprise and Arts Centre).

Much of the £450,000 the trust hopes to raise will be used to refinance Heart, which was bought on a 6% interest loan. The investment fund would pay off the loan and then claim repayments back from Heart at 3%, according to Helen Seymour, HDT’s chair.

She believes the fund is the first community investment fund set up to support a range of “free-flowing” projects, rather than a one-off scheme, such as a windfarm or hydro-power initiative.

It is a low-risk investment, she insists, noting that Heart has not missed a loan payment and the trust has produced a surplus for seven out of the past 10 years. Investors will be told exactly where their money is going and will be given the opportunity to shape the investment strategy by joining a new investors’ committee.

Facebook Twitter Pinterest Headingley Lane. Photograph: Headingley Development

Some of the money will be used to expand the Headingley Homes project, which aims to help to balance the neighbourhood by providing affordable homes to rent for long-term residents. Its portfolio comprises one house bought by the trust, and two leased from a public-spirited local owner.

Although Headingley’s red-brick terraces remain popular with students, a new breed of deep-pocketed scholars are choosing instead to live in purpose-built student blocks in Leeds city centre. That is causing a slow change in demographics in the area, says Seymour.

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She has noticed more people wanting to put down roots in the area who can be deterred by the high rental prices, inflated by students living in HMOs (houses of multiple occupancy).

Investors would be able to sleep easy knowing exactly where their money had gone, said Seymour, who is going to invest £5,000 of her own money in the new fund.

“The state of capitalism in the UK isn’t hugely encouraging – there’s a repugnance about putting money into the stock market and what that signifies. Carillion [the construction firm that collapsed in January] has not done the comfort in capitalism much good,” she said.

“With the Headingley Investment Fund, you know where your money is going and you can see it doing good. It’s safe and you can get it out, but you can expect a 2% return each year, which compares very well to building societies at the moment.”