Savers aged between 18 and 40 will be able to open a cash lifetime Isa from this Thursday – but they’ll only earn 0.5% on their savings.
Although lifetime Isas officially launched on 6 April, Skipton Building Society will become the first savings provider to offer a cash version of this product.
Savers can open an account with just £1, with interest paid annually on the anniversary of the account opening.
Skipton told Which? that its decision to offer 0.5% was ‘sensible and designed to take into account the current savings market.’
It added that its lifetime Isa savers will be offered the opportunity to get ‘£250 cashback when they take out a mortgage with Skipton or through an intermediary at a later date.’
Lifetime Isas: at a glance
Lifetime Isas are designed to help people save for their first home or their retirement. Here, we explain how they work.
- Who can open a lifetime Isa? Adults aged 18-39.
- What do I get? For every £4 you save, the government will add £1 (worth up to £1,000 every tax year until you turn 50 years old).
- How much can I save? Up to £4,000 a year is eligible for the 25% bonus.
- When is the bonus paid? In the first year it will be paid annually, but from the 2018/19 tax year onwards the bonus is paid every month, so that you benefit from compound growth.
- Does this sit within my overall Isa limit? Yes, your overall annual Isa limit will be £20,000 in 2017/18 for all payments into a cash Isa, stocks and shares Isa, innovative finance Isa, or lifetime Isa.
- Can I spend the money on whatever I like? Under the age of 60 – no, you must use the cash to purchase a first property worth up to £450,000. After age 60 – yes, you can spend the money as you see fit.
- Are withdrawals tax-free? Yes, as with other Isas, withdrawals are tax-free.
Skipton’s lifetime Isa vs Help to Buy Isas
Skipton’s lifetime Isa will offer savers the opportunity to get a 25.5% return on their savings, including the 0.5% interest. If you deposit the maximum £4,000 immediately, you’d end up with £5,020 after one year of saving, including the 25% bonus.
Help to Buy Isas are another vehicle for building a deposit for a home. For every £200 you save, the government will pay you a £50 bonus towards the purchase price of a property. Each year, you can save a maximum of £2,400, on which you can earn interest.
The government pays the bonus on completion of the sale of a property, and gives a 25% top-up on savings of up to £12,000 – so you could earn a maximum bonus of £3,000 tax-free.
The table below shows the top five best-paying Help to Buy Isas currently available and what return you could get based on monthly savings of £200.
|Provider||AER||Minimum initial investment||Maximum earned in one year|
|Tipton & Coseley BS||2.75%||£10||£2,435|
- Find out more about whether you should open a lifetime Isa or a Help to Buy Isa.
Withdrawing money from a lifetime Isa
If you want to take money out of your lifetime Isa, you may face a 25% penalty on the amount withdawn.
The penalty applies if you spend the money on anything other than your first property, and you’re under the age of 60, although it will only take effect from April 2018.
If you use the money to purchase your first property, or withdraw after the age of 60, you won’t be charged.