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Since the introduction of the Lifetime ISA (LISA) in April 2017, those who are eligible have had two options to save for their first home deposit with the help of a Government bonus and without paying tax – the Help to Buy ISA and the LISA. But which one is better? The answer will undoubtedly depend on your individual circumstances, but here's a quick run-through of the main points to consider. You can’t now take out a new Help to Buy ISA, but you can still transfer an existing one to another provider, or to a Lifetime ISA.
While both types of account can be used to save for a first home, the Lifetime ISA has the added advantage of being useable for retirement saving as well. Depending on the provider, it may even be possible to use the LISA to pay for your deposit while keeping the account open (by keeping a minimum amount in it) and then save for retirement as well. Just bear in mind that you can only have one Lifetime ISA account at a time, and can't open a new one once you've reached the age of 40.
However, the Lifetime ISA is a lot stricter if you think you may want to take money out of the account for any reason other than retirement, buying a first home, or due to terminal illness or death. Accessing the money for other reasons will result in a hefty 25% penalty, unlike with a Help to Buy ISA, where access restrictions are far less severe and typically depend on the individual provider.
Unlike the Lifetime ISA, the Help to Buy ISA is only designed for to a person of any age saving for their first home. In addition to this, with a Help to Buy ISA you are able to withdraw your money without buying a house, although you will lose the 25% government bonus if you do this.
The major downside to a Help to Buy ISA is that the 25% government bonus is only applied to the total amount saved, whereas with a Lifetime ISA it is applied yearly, meaning that you could get more bonus money from a Lifetime ISA.
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Help to Buy ISA |
Lifetime ISA |
| Find products | No longer available for new customers. | Find Lifetime ISAs |
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Eligibility |
Not applicable. |
Savers must be aged between 18 and 39 |
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Investment |
An initial deposit of up to £1,200, then up to £200 per month thereafter |
Up to £4,000 can be saved per tax year |
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Bonus |
25% Government bonus on the full amount saved, up to £3,000. The bonus won't be added to your ISA until you complete a mortgage, with the bonus payment arranged on your behalf by your solicitor |
25% Government bonus until the age of 50 (max. £1,000 per year, up to a maximum potential bonus of £32,000). The bonus is paid annually and added to your pot, giving you a higher balance on which to earn interest |
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Risk |
The Help to Buy ISA is a form of cash ISA, which means you will get a variable or fixed rate of interest and that your capital is protected (just make sure the provider operates under the FSCS or a similar compensation scheme). As such, it's a zero-risk form of saving, in line with traditional savings products |
Almost all Lifetime ISAs are of the stocks & shares variety, which means your money would be invested in the stock market. This is a lot riskier than investing in a cash ISA as your returns aren't guaranteed, and nor is your initial investment, so you'll need to be prepared for that level of risk. Having said that, there are three cash LISAs in the market at the moment |
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Interest |
As a cash ISA, you will have a pretty good idea of the interest that you will get, even if you choose a variable rate account. The exact interest rate will of course depend on what account you choose, so comparing the options and finding a competitive ISA product is crucial |
Investing in a stocks & shares LISA means you won't get a set interest rate. You can secure much larger returns than with regular cash ISAs, but at the same time you also run the risk of losing money due to the unpredictable nature of the stock market. The three currently available cash LISAs do allow you to earn interest in the usual way, though they offer a lower rate than most Help to Buy ISAs. |
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Restrictions |
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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.
