Lifetime ISAs (LISAs) first launched in 2017, and they were a replacement for its Help to Buy ISA predecessor cousin. LISAs are a tax-free savings account which lets you save up to £4,000 per tax year. For a detailed explanation and how it compares to the Help to Buy ISA see my full www.mse.me/lifetimeISA guide, yet in a nutshell…
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It’s for first-time buyers… As long as you’ve never owned, or part owned a home (in any way) you can use the money as a deposit for a mortgage towards any residential property that costs up to £450,000.
or for retirement savings. The money and bonus can also be taken out once you hit age 60.
You get a 25 percent bonus on everything you put in. For every pound you contribute in a year, the state will add 25 percent, until you’re 50. So, if you save £1,000, you’ll have £1,250, and if you save the full £4,000, you’ll have £5,000. That means if you fill this years now, and you had another £4,000 to save you could put that in on the 6 April – so you’d have £8,000 in by then.
There’ll be a penalty if you withdraw cash for anything else. You can withdraw money whenever you want, but if it’s not for the property – or at retirement – there will be a 25 percent penalty (remember you’ve already been given a 25 percent bonus). The maths works out that for every £100 you put in, you get £93.75 back, so only put in money you know you’ll use for a qualifying home buying or retirement.
So, if you want a LISA sort it soon, so you can use this year’s allowance now, and then you get another one on 6 April.
Sadly though, LISAs aren’t available to everyone
You must be aged 18 to 39 to open one. Yet as long as you open it the day before you’re 40 you can then continue to use it afterwards.
The other big timing issue is that there’s a rule that says to use the bonus for a home, you need to have had it open for at least a year.
So, I’d urge anyone considering it to at the very least put in a £1 now, as that starts the clock ticking. Of course, if you can save more, then do.
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The number of providers offering LISAs are limited
There are two types of LISAs. Cash LISA and Stocks and Shares LISA. There aren’t many top cash LISAs to choose from, as not many providers offer them, but top is app-based www.moneyboxapp.com which pays 1.4 percent AER followed by the branch and online www.thenottingham.com building society paying 1.25 percent AER.
You can also open an investment LISA, meaning your money goes into stocks and shares. There are more choices here including the likes of www.hl.co.uk and www.nutmeg.com.
Though remember with these you’re taking a risk, and these are far less suitable for those who’ll be using the money within five years.
What to do if you can’t get a LISA
If you can’t get a LISA, let’s say because you’re too old, then if you opened a Help to Buy ISA before they closed for new applications in November last year, you can keep saving in it till November 2029 and use it for the 25 percent house bonus till December 2030.
If you didn’t open a H2B ISA then it’s a question of just putting your money in the best savings accounts. For regular saving you can put up to £500/month in the www.coventrybuildingsociety.co.uk regular saver earning 2.5 percent AER.
Or, for lumps with easy access there’s www.marcus.co.uk and www.saga.co.uk 1.3 percent AER. Full help in my www.mse.me/topsavings guide.
Martin Lewis is the Founder of MoneySavingExpert.com. To join the 13 million people who get his free Money Tips weekly email, go to www.moneysavingexpert.com/latesttip
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