The Lifetime ISA (LISA) has been available since 6 April 2017 and although there was a lot of anticipation, it’s launch was what can only be described as a damp squib – with few providers offering them and no cash Lifetime ISAs at all.
Two months down the line and at last, as they promised us, Skipton Building Society has launched the first cash Lifetime ISA. So, for those who want to deposit more than the £200 per month that can be saved into a Help to Buy ISA, but want to keep their money in cash, this is good news.
What is less good news, is the interest rate. In a market with no competition at all, the rates were never going to be great – but the Skipton Lifetime ISA is paying just 0.50% tax free/AER.
Of course, the real draw with the Lifetime ISA is the 25% per annum bonus. So, if you save the maximum £4,000 per year, the government bonus of 25%, or £1,000 in this case, will be added, meaning an overall deposit of £5,000 is deposited ready to earn interest.
Whilst it’s similar to the Help to Buy ISA, in that you can earn a 25% bonus on your contributions, it’s not just designed for first time buyers. If you don’t use the bonus to buy your first home, simply hang onto the account until age 60 and you’ll have the bonus plus the money you’ve saved, to enjoy in retirement.
Initially the bonus will be added once in April 2018 but after that date it will be added monthly, so you can start to earn interest on it earlier. It should be remembered though, that future bonuses are based on how much you deposit into the LISA, not on the value. So whilst you will earn interest on the bonus, you don’t earn a bonus on the interest!
- You can save up to £4,000 per year into the Lifetime ISA, either as a lump sum or on a more regular basis.
- Contributions into the Lifetime ISA form part of your overall annual ISA allowance, but you can also open a normal Cash ISA, Stocks and Shares ISA and Innovative Finance ISA each year – as long as your total contributions do not exceed the overall allowance, which is currently £20,000 (2017/18 tax year).
- As the Help to Buy ISA is part of the Cash ISA allowance, you can hold both a Help to Buy ISA and a Lifetime ISA, although you will not be able to use the bonus from both to purchase your first home. However, you can get the bonus on the Help to Buy ISA for your first home, then keep the Lifetime ISA until age 60 and enjoy the bonus in retirement.
- You can open a LISA if you are aged between 18 and 40 years old and contribute until you are 50.
- You must hold the LISA for a year before you can use the money saved and the bonus towards the deposit on a first home.
- If you cash in your Lifetime ISA before the age of 60, it must be used for a deposit for the purchase of your first home.
- If you encash before the age of 60 for any other purpose, there will be a penalty equivalent to 25% of the value of the account – which means you could get back less than you paid in!
Overall, we quite like idea of the Lifetime ISA as the 25% bonus is very appealing. And, although there is only one cash Lifetime ISA available for now, with a very disappointing interest rate, we hope that banks and building societies will challenge Skipton, which will hopefully push the rates up higher.