Best Lifetime ISA rates

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A guide to Lifetime ISAs

At a glance

  • Lifetime ISAs (LISAs) are a form of individual savings account that allows you to save for your first home or retirement entirely tax-free.
  • You can save up to £4,000 a year into a LISA and will receive a Government bonus of 25%.
  • You can open a LISA if you’re between the ages of 18 and 39 and will receive the Government bonus until you’re 50. 
  • When you reach the age of 50, you can no longer add to your LISA or earn bonuses, but you will still earn interest.
  • Funds may also be accessed penalty-free if you are terminally ill with less than 12 months to live.
  • Withdrawals for any other reason will result in a hefty penalty charge.
  • You can transfer to a new Lifetime ISA but need to check the new account accepts transfers-in.
  • You can have another ISA as well as a Lifetime ISA, but must not exceed the ISA allowance of £20,000 for the 2019/20 tax year.

Who can open a Lifetime ISA?

Those aged between 18 and 39 can open a Lifetime ISA and continue to save into their account until the age of 50. You need to be a UK resident (or Crown Servant).

What can a Lifetime ISA be used for?

A Lifetime ISA is a savings account that can be used to either help fund the purchase of your first home or to supplement your pension , once you are aged 60 or over. This may appeal particularly to those who are self-employed and do not have a personal pension.

How much can you save into a Lifetime ISA?

You can put up to £4,000 a year into a Lifetime ISA and this counts towards the 2019/20 tax-year annual ISA limit of £20,000.

Lifetime ISA FAQs

What is the bonus on a Lifetime ISA?

There is a bonus of 25% of whatever you save into a Lifetime ISA from the Government (which is paid monthly), resulting in a maximum of £1,000 extra per year if you pay in the full £4,000.

How much could a Lifetime ISA be worth?

You would earn £32,000 from the Government bonus, if you saved the maximum amount possible from the age of 18 to 50 and earned the maximum £1,000 per year. The total of your deposits (including the bonus) over the 32 years would be £160,000 before you earn any interest.

The 25% bonus is paid only on your actual deposits and not including any interest. So, if you save £1,000, the Government will pay £250 into your account.

Your savings, including your bonus, will earn interest and this will be compounded either monthly, annually or on the anniversary of your account opening. The benefit of this is that after year one you start to earn interest on interest.

Read our guide What does compound interest mean? or try our monthly savings calculator to see the effect compound interest can have on your savings.

Can you open a stocks and shares Lifetime ISA?

Yes, Lifetime ISAs are available as both cash ISAs and stocks and shares ISAs.

What can I use my Lifetime ISA savings for?

A Lifetime ISA should be a medium to long-term investment choice. They are designed to be used either to help fund the purchase of a first home or to supplement your retirement savings or pension once you are over the age of 60, or if you have a terminal illness with less than 12 months to live. If you need to withdraw funds for any other purpose, then these will likely incur a penalty. 

What other rules do Lifetime ISAs have?

If you want to use your Lifetime ISA to help buy a first home, then the property value must not exceed £450,000.

Are there any restrictions for a Lifetime ISA?

Other than age and being a UK resident, there are no other restrictions to open a Lifetime ISA, although it would be best to make sure you won't need the funds you put in for any reason other than saving for retirement or buying a first home. This ensures that you don't end up having to retrieve your money and paying a penalty, which we'll cover below.

What happens to my Lifetime ISA if I die?

It is possible for your spouse or civil partner to inherit your Lifetime ISA account – this would be as an additional permitted subscription allowance.

Do you pay tax on withdrawals?

No, all withdrawals from a Lifetime ISA are free from tax.

Can you have more than one Lifetime ISA?

You can only put money into one lifetime ISA per tax year up to a total of £4,000 plus the Government bonus of £1,000. You can transfer your Lifetime ISA to an alternative provider – this will help to make sure you get the best return on your savings. Look at our list of providers for Lifetime ISAs to see which accept transfers in. 

Can you use two Lifetime ISAs to buy a house?

As long as each individual is eligible for the Lifetime ISA to buy their first home, then it is possible to have  use their Lifetime ISAs to buy a house.

How do Lifetime ISAs work for first-time buyers?

How do Lifetime ISAs work for retirement savings?

Should I use a Lifetime ISA instead of saving into a pension scheme?

  • If you are employed, then your employer will also contribute to your pension.
  • Your contributions into a pension come from your gross salary, so if you are a basic rate taxpayer, a £100 payment into your pension only costs you £80, whereas a Lifetime ISA is paid from your net salary.
  • If your company offers salary sacrifice, you can also reduce the amount of national insurance contributions you make.
  • Your pension savings are not taken into account if you need to claim employment benefits; while funds in a Lifetime ISA may need to be withdrawn before you can qualify for means-tested benefits and you will incur a 25% penalty to get to your cash.
  • If you struggle financially and need to declare bankruptcy, any savings you have will be seen as assets and will need to be cashed in. Pension funds are usually protected.
  • You can start to draw down funds from your pension pot from aged 55, compared to 60 to make a withdrawal from a Lifetime ISA.

The benefits of a Lifetime ISA versus a pension

  • All withdrawals from your Lifetime ISA are free from income tax, while you can only claim 25% of your pension tax-free.
  • Some pensions for those employed by the Government only allow access to funds at state retirement age.

Find out more about personal pensions and how to save for a pension in your 20s.

Which banks and building societies offer Lifetime ISAs?

The market for Lifetime ISAs will increase in importance as Help to Buy ISAs close to new accounts from the 30 November 2019. Currently, there are providers offering both cash and stocks and shares versions of Lifetime ISAs.

Cash Lifetime ISAs

  • Moneybox has an account called Moneybox Cash Lifetime ISA, which is operated by OakNorth Bank. This means and funds in the account are covered using OakNorth Bank’s banking licence for the financial services compensation scheme. This is an app-based account and can be opened from £1. You can transfer in from other ISAs into the account and interest is paid monthly.
  • Nottingham Building Society offers two Lifetime ISAs: the Lifetime ISA and Lifetime ISA Online. The former can be opened and managed in branch and the latter online, while both accounts can be opened with £10. They do not accept transfers in and interest is paid yearly.
  • Newcastle Building Society has Newcastle Cash Lifetime ISA that can only be opened online, but then managed online, by phone and by post. The account can be opened with a minimum deposit of £1.
  • Skipton Building Society has an Online Cash Lifetime ISA Issue 2. This is an online-only account and pays interest on anniversary. The account accepts transfers in and can be opened with a £1.

Stocks and shares Lifetime ISAs

  • The Share Centre has a ready-made Lifetime ISA, which has three funds available and can be opened without a minimum deposit.
  • Moneybox operates a Stocks & Shares Lifetime ISA. This can be opened form £1 and has a total of seven funds available.
  • Forester Life offers a Lifetime ISA with a starting balance of £20 and a required minimum monthly investment of £20. It has two funds available.
  • One Family has a Lifetime ISA with a minimum deposit of £250 and a regular monthly investment of at least £25. It has 2 funds available.
  • Hargreaves Lansdown offers a Lifetime ISA with a minimum opening amount of £100 and a regular monthly minimum payment of £25. There are 2,500 funds available.
  • AJ Bell has an account called Youinvest Lifetime ISA. The minimum to open this account is £500. The minimum monthly payment is £25 and there are 3,900 plus funds available.
  • Unity Mutual offers a Lifetime ISA (capital protected) that can be opened from £1. The monthly payment must be at least £25 and there is only one fund available.
  • Foresters Friendly Society has a Lifetime ISA. You need £500 to open this stocks and shares account and be able to make a minimum monthly payment of £100. They only have one fund available.

Why should I get a Lifetime ISA?

A Lifetime ISA comes with the advantage of a 25% cash bonus from the Government. Interest rates may be higher on other savings accounts but a Lifetime ISA allows you to grow your savings pot over time, with the benefit of a maximum of £1,000 per year contribution from the Government, depending on the amount of your contributions.

Lifetime ISAs explained

Age restrictions and eligibility

You can open a Lifetime ISA if you're a UK resident (or Crown Servant) aged between 18 and 39 years old. There are no other restrictions to open one, although it would be best to make sure you won't need the funds you put in for any reason other than saving for retirement or buying a first home. This ensures that you don't end up having to retrieve your money and paying a penalty, which we'll cover below.

Why should I get a Lifetime ISA?

Penalties

  • The Government subtracts 25% of the balance you withdraw from your Lifetime ISA if this is used for any other purpose than to buy a new house (if under the age of 60) or for your retirement (if you are over 60), or if you have a terminal illness with less than 12 months to live.
  • For instance, if you paid in £1,000 and received a bonus of £250 (25%), you would have a total of £1,250. If you decided to withdraw this for a purpose outside of the Lifetime ISA rules, then you would pay a penalty of £312.50. So, £62.50 of your own deposits would be required for the penalty.
  • Be confident that you want to invest for the medium to long-term to avoid penalties and to make sure you have the savings you need, when you need them.
  • If you have a critical illness you can make a withdrawal but this will incur a 6% penalty of the funds withdrawn.

Moneyfacts tip

Moneyfacts tip Michelle Monck

You can transfer your Lifetime ISA funds between providers without a penalty. This means you can continue to look for the best rates to maximise your Lifetime ISA returns.

Can I open and contribute to another ISA and a Lifetime ISA?

There are four types of ISA: the cash ISAstocks and shares ISA, innovative finance ISA and Lifetime ISA. You can only open one new ISA of each type per tax year. There's nothing stopping you from opening all four types of account, for instance by putting the maximum amount in a Lifetime ISA and the rest of your annual ISA allowance in a cash ISA (or a stocks and shares ISA, an innovative finance ISA, or split between the different types).

For the 2019/20 tax year, the ISA limit is £20,000, which means that if you put the maximum in a Lifetime ISA, you would still have £16,000 to distribute between the other types.

How many Lifetime ISAs can I have?

You can have as many as you'd like, but you will only be able to open and pay into one per tax year. This effectively means that you'll only get the Government bonus paid on one of your LISAs, but it also means you wouldn't be able to benefit so much from the effects of compound interest on your accumulated savings. Particularly for the purposes of buying a house, it would be much simpler to have your savings combined in a single Lifetime ISA; your solicitor/conveyancer might not even accept multiple accounts.

When will I get the Government bonus?

The Government's generous 25% bonus is calculated and added to your LISA on a monthly basis (from 6 April 2019). This does not, however, mean that you will be able to access it. As stated, the Government bonus gets paid directly through the solicitor when buying a house, and subtracted (plus a penalty) if you decide to take your money out before the age of 60 unless you are terminally ill. You will only see the bonus yourself once you're 60 and your Lifetime ISA cash becomes fully available.

Is a Lifetime ISA better than a Help to Buy ISA?

A Lifetime ISA is an alternative to a Help to Buy ISA for those wanting to save for their first home. They have different annual maximum deposits. 

ISA Type

Bonus

Maximum deposit per tax year

Lifetime ISA

25% of your ISA balance up to £1,000 per year. Continues until you reach the age of 50.

Up to £4,000 per year.

Help to Buy ISA

25% of your total balance up to a maximum of £3,000.

Up to £1,200 for your first deposit and then up to £200 per month.

Our Help to Buy ISA versus Lifetime ISA guide explains more.

Help to Buy ISAs are no longer be available to new investors.

Are lifetime ISAs ending?

Lifetime ISAs remain open to new investors as long as they meet the criteria for the product. Help to Buy ISAs, which were another Government scheme aimed at savers, closed to new savers on 30 November 2019. If you open a Help to Buy ISA before this date, you can still pay into it until 30 November 2029, while the bonus must be claimed by 1 December 2030.

Stocks and shares ISAs

You can also choose to invest in a stocks and shares LISA instead. 

Compare LISA Rates

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