Could you be getting more interest from your lifetime Isa?

Low interest rates on cash lifetime Isas (Lisa) could harm your homebuying goals over the long term, with savers urged to check and switch providers to get the best deals.

There’s a gap of more than two percentage points between the highest and lowest-paying accounts.

With interest rates falling on many accounts, savers shouldn’t rely on the government bonus of up to £1,000 a year to safeguard their long-term savings

Here, Which? sets out how to make the most of your lifetime Isa and the alternatives worth considering.

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What is a lifetime Isa?

The lifetime Isa (Lisa) is a tax-free savings or investments account designed to help first-time homebuyers and people saving for retirement. 

Lisas can only be opened between the ages of 18 and 39, though you can continue paying in until you reach the age of 50. 

For every £4 you save, the government will add £1, up to a maximum of £1,000/year if you pay in £4,000 annually. Making full use of this could net you up to £32,000 in bonuses.

There are two types of lifetime Isa: cash and stocks and shares. You can only open and pay into one in each tax year, so you’ll need to choose. 

A cash Lisa works like a savings account, with interest paid on your balance. 

A stocks and shares Lisa holds investments, so its value can go down as well as up. The investment route is often suggested for those saving for more than five years, such as for retirement, as it gives time to ride out market dips and protect against inflation.

• Find out more: best lifetime Isa rates

How providers compare

The top rate of 4.45% for a cash lifetime Isa is currently offered by Moneybox. This is more than two percentage points above the lowest rate of 2.3% offered by Skipton Building Society. 

Why do interest rates matter?

With a hefty annual bonus guaranteed for those maxing out their allowance, it's easy to lose sight of your account's interest rate – especially as most are variable and change regularly. But treating it as an afterthought is a mistake.

It's especially important to maximise the interest you earn when saving towards a long-term goal such as your first home. That's because compounding can make a huge difference to your savings pot over the course of many years.

Here’s an example. If you invested the maximum £4,000 (£333/month) into a cash Lisa paying 2% interest for five years and earned the full annual bonus each year, you’d have an end balance of £26,541. But if the account paid 5% interest, you’d have £29,010 – an increase of £2,469 (assuming the rate stayed the same throughout,). 

Over time this could make a significant difference to savers' homebuying power. That's why it's so important to monitor interest rates regularly and switch when better ones are on offer. 

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How to switch providers

Most banks and building societies allow you to transfer your existing cash Lisa with another provider to their own cash Lisa product – only Bath Building Society said it currently doesn't. 

You need to contact the new provider to start the process. Check your desired provider's site for information on how to complete a transfer in form. This can often be done online or in-app. 

Moving the funds over to your new provider should take no more than 30 days. 

Alternative ways to save

A Lisa isn’t the only route to building funds for a first home or retirement.

First-time buyer schemes

Lisas can boost your deposit, but there are other routes to consider.

Our guide to first-time buyer schemes covers a range of help, from options for buyers with smaller deposits to schemes that make it easier to buy the home you rent. 

You could also explore mortgage products such as guarantor mortgages, where a parent supports your application, or 95% mortgages for those with limited savings.

• Find out more: best mortgage rates 2025

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Pay into a pension

The lifetime Isa offers an alternative for younger people who might otherwise save into a personal pension or a self-invested personal pension (Sipp). But you might want to save into both, as the Lisa isn't a replacement pension but rather an additional savings vehicle.

In some cases, however, a traditional pension may be a better option if your goal is to fund your retirement. 

A pension is particularly beneficial for people who are already in a workplace scheme and your employer contributes (under auto-enrolment rules your employer will contribute at least 3%).

The same is true if you're a higher-rate taxpayer (so qualify for pension tax relief) and you are likely to be paying a lower rate of tax in retirement than you did in work.

• Find out more:  what’s best for retirement saving – a lifetime Isa or a Sipp? 

Spread your allowances

Savvy savers can split their £20,000 allowance across different types of Isa, including a Lisa. For example, you might keep some in a Lisa, another portion in the highest-interest cash Isa available, and the rest in a stocks and shares Isa for longer-term growth.

Since 6 April 2024, you’ve also been able to open and pay into more than one Isa of the same type each year.

 With cash Isas still offering rates of up to 4.7% AER, this extra flexibility may appeal if you already have an account but still have some allowance left to use.

• Find out more: best cash Isa rates 2025