Newcastle Building Society has just announced the launch of a new cash lifetime Isa, offering 1.1% AER – just the third such account offered on the market.
Lifetime Isas are designed for homebuyers and retirement savers, with a maximum government bonus of £32,000 available. But there are significant caveats.
This latest launch brings the total cash lifetime Isa options on the market up to three. So, how does this new account compare to existing products from Skipton Building Society and Nottingham Building Society?
Which? looks at what the new lifetime Isa offers, and how it measures up.
- Saving up for a house deposit? You can get expert advice on your mortgage options by calling Which? Mortgage Advisers on 0800 197 8461.
What does the Newcastle lifetime Isa offer?
The Newcastle cash lifetime Isa pays 1.1% AER monthly on all money saved into the account, including the 25% government bonuses.
Government bonuses are paid into the main cash account, so they will be compounded with the account interest over time.
The account must be opened online, and has a £1 minimum deposit. You’ll then be subject to the lifetime Isa rules, meaning you’re only able to pay in up to £4,000 in each tax year.
The account is available nationwide to those aged between 18-39.
No transfers allowed
Currently, you will not be able to transfer money from any other Isa into this account, including existing Help to Buy Isas, other lifetime Isas, cash Isas or stocks & shares Isas.
We have been told that the ability to allow transfers will be developed in future, but it is not available at launch.
- Find out more: lifetime Isas
How does the new lifetime Isa compare?
While there are 11 other lifetime Isas available at the moment; only two of them are cash Isas, and the rest are stocks & shares Isas.
The other cash lifetime Isas are offered by Skipton Building Society and The Nottingham Building Society.
Newcastle Building Society has launched this product with a table-topping rate of 1.1% AER, beating both of the products offered by Skipton and The Nottingham, which only offer 1% AER.
Products from Newcastle and Skipton can both be opened online and are available nationwide, but as yet The Nottingham product is only available to open in-branch, and is restricted to certain counties in England with branches.
However, The Nottingham account has the advantage of offering mortgage advice, whereas the other accounts do not.
Those who sign up to Skipton’s lifetime Isa will be able to get £250 cashback on a Skipton Mortgage, while Newcastle has not announced any similar cash incentives.
All other providers offer stocks & shares Isas, which have an added element of risk as your money is invested and there is no guarantee of a return.
Despite government assurances that ‘individuals will be able to transfer their lifetime Isa within 30 days between providers to get the best deal’, this is a rarity. Nutmeg, OneFamily and Hargreaves Lansdown don’t accept lifetime Isa transfers.
The Nottingham does not accept any Isa transfers – and, while it is reportedly set to change in future – neither does Newcastle.
For a full analysis of the different accounts available, read our guide on lifetime Isas.
Should I get a lifetime Isa?
The lifetime Isa has a lot of caveats, so you must check that you’re eligible to open one and that you can stick to its strict rules.
Firstly, you’ll only be able to open it if you’re aged between 18-39. If that doesn’t apply to you, you’ll have to look elsewhere.
You also need to consider what it is you’re saving for – if it’s not your first home or money to spend in retirement, this is not the product for you.
Trying to withdraw money for any other reason will mean a hefty withdrawal penalty, which will mean you lose your bonuses and any growth the money has made.
However, if you can stick to the rules, then the product could be hugely beneficial.
Savers who manage to pay in the maximum £4,000 each year between the ages of 18-50 will earn £32,000 in government bonuses alone (£1,000 each year).
Added to what you’ve saved, that’s a pot of £160,000 before any kind of interest or growth.
- Find out more: How to find the best cash Isa
What is a lifetime Isa?
A lifetime Isa is a government-backed tax-free savings account, suitable to be opened by those aged 18-39.
The government pays a monthly 25% bonus on whatever you pay in, up to a maximum of £1,000 each tax year. You’d have to pay in the maximum annual deposit of £4,000 to get this amount.
The contributions you make into a lifetime Isa sit within your £20,000 Isa allowance, so if you pay in the maximum £4,000 deposit into a lifetime Isa, you’ll only be able to pay £16,000 into another Isa in the same tax year.
You can pay into the account until you turn 50.
You’re only permitted to use the money towards your first home, if you’re a first-time buyer, or you can spend it however you wish after you’ve turned 60.
Making withdrawals for any other purpose – unless you’re diagnosed with a terminal illness – will result in a withdrawal penalty.
To use your savings towards a property, you must be a first-time buyer and intend to use the property as your home. The property can be anywhere in the UK, with a maximum value of £450,000
Saving for your first home?
While saving up for your first home can be daunting, lifetime Isas could give you a leg up.
The savings from your account can be used as part of your deposit once you’ve exchanged contracts.
Even if you’re still building up your deposit, it’s worth thinking about your mortgage options and working out how much you’d need to save.
For advice on buying your first home, you can speak to an expert from Which? Mortgage Advisers – fill out the form below to request a callback.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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