Newcastle Building Society this week launched only the third cash Lifetime ISA (LISA) in the market – and, rather than simply matching the rate of the other two from Skipton and Nottingham Building Societies, it has beaten them both, paying 1.10% gross/1.11% AER.
The LISA was launched in April 2017 and, on the whole, is a superior alternative to the Help to Buy ISA, which has been available since December 2015.
It offers a real boost to younger savers who are saving for their first house or for retirement, as it offers a 25% bonus for each deposit made into the plan.
Having said that, for those looking to get onto the housing market, the LISA offers a far more generous bonus potential than that of the Help to Buy ISA, as you can deposit up to £4,000 per year – with a 25% bonus applied to each deposit.
So, for every £100 deposited, the Government bonus will add £25 – which can then earn interest going forward, offering even more value with the benefit of compound interest on the deposit and the bonus.
With the Help to Buy ISA, although the bonus potential is also 25% (up to a maximum bonus of £3,000 in total), you can only deposit up to £200 per month (plus a one-off initial deposit of up to £1,000) and the bonus is only provided at the point of completion on the house purchase, so doesn’t benefit from the compounding effects throughout the lifetime of the account.
But there are some important differences which mean that a LISA may not be the right choice for some would-be first-time buyers. For example, the LISA has to be held for a minimum of 12 months before it can be accessed, so those looking to buy within this time would not be able to use it for their house purchase and would instead need to hold it until the age of 60 – or face a penalty for early withdrawal.
For further comparisons and to check which product might be the most suitable, download our factsheet: Lifetime ISA or Help to Buy ISA.
Fingers crossed that Monday’s Budget speech doesn’t see an end to this valuable savings tool and that the addition of this Newcastle LISA to the market is followed by many more going forward, which will hopefully improve the rates on offer.
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