Paragon has today launched a cash Lifetime ISA (LISA) for the first time, taking the total number of these accounts available up to five.
The new Paragon LISA is paying 1.15% AER and can be opened online – then managed online, by telephone and by post.
Of the five cash LISAs currently available, this one sits bang in the middle with the best rate available via a financial app called Moneybox (although the actual LISA is offered by OakNorth) paying 1.40% - and the worst, from Skipton Building Society pays 1% AER.
The Lifetime ISA is arguably a more generous version on the Help to Buy (H2B) ISA which will no longer be on sale after 30th November 2019.
You can open a LISA from the age of 18 and deposit up to £4,000 per tax year until the age of 50. And the Government will add a 25% bonus to each deposit made. If you were to deposit the maximum from age 18 to 49, you could receive as much as £33,000 as bonus payments – and importantly because the bonus is added shortly after the deposit is made, the account will earn tax free interest on both the deposit and the bonus.
A key difference between a H2B ISA and the LISA, apart from the level of bonus that can be earned, is that if you decide not to purchase your first home, you can hold the LISA until the age of 60 and still receive the bonus, regardless of what you spend the money on at that point. If you withdraw the money before the age of 60 for anything other than your first home however, you will be stung with a significant penalty. This is not the case with the H2B ISA as the bonus is only added at the point of completion of your first home. If you withdraw the money for any other purpose, there is no penalty – you simply won’t receive the Government bonus but you will have earned competitive interest on what you have deposited.
With the H2B ISA being withdrawn from sale at the end of the month, hopefully this new account from Paragon will be the first of many new cash LISAs to the market. Presumably high street providers such as Barclays, Nationwide and NatWest, who currently offer some of the best H2B ISAs on the market, will also launch LISAs as they will not want to miss out on the chance to offer a product to potential mortgage customers.