When the Lifetime ISA (LISA) was launched earlier this year, few providers offered them and the new product consequently passed many savers by unnoticed. So, what is the LISA and how could it be of benefit to you?
What is the Lifetime ISA for?
The LISA is designed to enable people to buy their first home or for their retirement. The annual deposit limit for LISAs is £4,000 and you can opt for cash savings (paying interest) or stocks and shares investment, yielding growth (or loss).
The LISA is to be used for two purposes specifically:
• First-time buyers saving for a deposit on a residential property
• Retirement savings when age 60 is reached.
You can keep the LISA open after you’ve bought your first home and use it to save for retirement. You must be over 18 and under 40 to be allowed to open a LISA.
Lifetime ISA Bonuses
Each tax year that you make a deposit into your LISA account, you will receive a 25% tax-free bonus in addition to any interest or growth that your savings achieve.
After the first 12 months, the bonus is paid monthly to your account until you reach age 50 and can also gain interest, boosting your savings.
If you took out a LISA at aged 18 and paid in the maximum annual deposit until you reached 50, you could receive a bonus amount of £32,000 on top of your savings.
Lifetime ISA Withdrawals
Unless you die during the term of your LISA, you can’t withdraw money for anything other than the two specified purposes without incurring a penalty, except during the first year of the policy.
After the first year, withdrawals will mean a 25% deduction from your savings.
However, if you have a LISA and you want to switch to another provider, you can do so without penalty, so keep an eye on interest rates between providers, as they do vary.
You can have a standard ISA and a LISA if you wish and you can split the overall annual ISA limit of £20,000 between the two if you want to, up to the maximum LISA limit of £4,000.
The LISA is an investment vehicle that many people have overlooked.
If you are a younger saver and you want to save towards your first home, as well as provide for your retirement, a LISA could be a useful savings account to consider.