What is a Lifetime ISA?

In 2017, the government launched the Lifetime ISA; this was to replace the Help to Buy ISA of which is ending at the end of this month. This scheme was designed to help people to save for the big moments in their lives, buying their first house or retiring. After realising that many require a higher amount of funding in order to pay for their deposit, they launched the Lifetime ISA. These ISA’s allow you to save up to £4,000 a year with cash-free interest. This gives you the perfect opportunity to save as much as possible. With the Help to Buy ISA ending shortly, it’s becoming a rush for people to decide between the two. We’ve answered some of the main questions here so that you can make an informed decision on which scheme would be best for you.

What is a Lifetime ISA?

With a Lifetime ISA you can save up to £4,000 a year until your 50. This can be saved up on a regular basis throughout the year or can be in lump sums to reach the £4000 limit. At the end of each tax year the government will add an extra 25% of what you have saved into your account as part of the scheme. This allows you to earn interest on all that is in the account including what the government has given to you. With the Help to Buy scheme, you’re given the government grant when you’re in the process of purchasing the mortgage of the house. 

Another positive of the Lifetime ISA is the amount you can save. With the ability to save up to the age of 50 if you were able to consistently save £4,000 a year from 18 you would manage to receive £32,000 from the government. Once you reach 50 you can no longer put money into this ISA, however, you’ll still have access to the account.

New House keys

When can I spend my Lifetime ISA?

If you’re using the Lifetime ISA in order to save for your first home, you have more options available than in comparison to the Help to Buy scheme. As you can save more each year as well as being able to receive more money from the government year on year you’re also able to spend more on your first house. Your total spends can come up to £450,000. With the Help to Buy scheme, you’re only allowed to buy a house valued at a maximum of £250,000 or in London you can spend £450,000. 

People looking to use this ISA as a pension fund, then you’re able to put money into your savings until the age of 50. However, you won’t be able to take the money out until you pass the age of 60. Despite not being able to put any more money into the account you’ll be able to increase your savings through interest over the last ten years. Your money will earn you tax-free interest at a rate given to you by the bank you’re with. 

What happens if I need to take money out for something else?

One of the negative aspects of the Lifetime ISA is that you’re restricted on how this money is spent. Unlike the Help to Buy ISA, you’re only able to spend this money specifically on the chosen aspects of your first home or your retirement pension. If you withdraw any money or transfer it to a different account, then you will be charged 25% of what you take out from the account.

An example of this would be if you need to take out £150 to cover an outstanding bill then you’ll instead need to take out £200 from the account. Taking £200 out of the account includes the 25% charge meaning you will pay £50 from your withdrawal leaving you with £150 that is needed for the bill. 

Which banks offer Lifetime ISA’s

The Lifetime ISA can come in two different forms, a cash ISA or Stocks and Shares ISA. These are available at selected banks and building societies. These different schemes come with different perks and risks. The cash ISA is the most simple and safest option for you to save with, what you put in is what you get out, with added interest the money will sit there until you need it. The best place to get a cash ISA is with Moneybox, their lifetime offers the best rate of interest at 1.4% this is on top of the 25%.

New Home

Stocks and shares

With a Stocks and Shares ISA, you’re given the ability to invest your money into selected stocks, businesses and trusts that are given as options to you by the bank you go with. This option comes with risk as with any investment option out there. As these stocks can go up and down in price you can make more money without having to put more into the account. You’re also vulnerable to losing money if those share prices go down 

How to open a Lifetime ISA

In order to open a lifetime ISA, you need to be between the age of 18 and 39. There are limited places you can open an account at the moment as many banks are still focused on the help to buy ISA. For a cash Lifetime ISA you are able to open an account with Moneybox for a minimum first deposit of £1. Interest is paid into your account on a monthly basis allowing you to get the most out of your account as well as the annual government bonus. To open an account with Moneybox you simply open their website or app and follow their instructions. To open an account with an established building society such as Skipton or Newcastle then you can go online or into a branch. However, you’ll need to open an account with a minimum of a £10 deposit.

Shake hands

Stocks and shares Lifetime ISA work a bit differently, as you’re looking to invest money you will be required to deposit a higher amount of money in order to create your initial investments.  AJ Bell Youinvest offers a wide range of investment plans to suit your needs with portfolios to match your investment knowledge from safe plans to adventurous. In order to open an account, you need to visit their website and follow their application process. The minimum required deposit for this company is £500. As this is a big decision that many will have to take a lot of consideration over it is best to consult your bank over the decision. Especially as the Help to Buy scheme is ending it is best to find out which scheme will be best suited for your needs. Barclays Bank are one to offer advice online or if you prefer to speak to someone you can with the Barclays customer Service about what would be the best decision to make so we advise you do enough research before certifying a decision.