HMRC charged lifetime Isa savers £2.95m in penalties for accessing their money, between January and March 2020.
January 2020 alone saw savers paying up more than £1.1m, according to Freedom of Information (FOI) data obtained by pension firm Royal London containing provisional HMRC figures.
Here, Which? explains how the lifetime Isa withdrawal penalty works and whether a lifetime Isa is worth considering.
Looking at other FOIs obtained by Royal London, it seems as though penalties are increasing.
In the full 2018-19 tax year, £4.35m was paid in lifetime Isa penalties, coming to £362,500 per month.
Between January and July 2019, penalties already stood at £4.69m, which equates to £670,000 per month.
As for 2020, £2.95m in the first three months of the year comes out as £983,333 per month.
One reason behind this is that there are simply more people with lifetime Isas; therefore more people to make withdrawals and pay a penalty. In 2018-19 the number of lifetime Isa holders rose to 223,000, up from 154,000 the year before, according to the latest HMRC Isa statistics.
What's potentially worrying, is whether the penalty is not being fully understood by savers before they sign up, resulting in them making losses they weren't fully aware of.
As lifetime Isas have only been around since April 2017, it's hard to tell whether there are any particular trends to these withdrawals yet, but some providers have hinted that withdrawals in January tend to be slightly higher, maybe indicating those who overstretch their finances over the Christmas period may end up paying the penalty.
The withdrawal penalty only kicks in when you take money out for a purpose other than buying your first home, to use in retirement after you reach the age of 60, or if you're diagnosed with a terminal illness.
For anything else, there's a penalty charge. Under the usual lifetime Isa rules, this is 25% - but it's currently at a reduced rate of 20% to help those who need to access their savings due to the effects of COVID-19.
While it may sound like the 25% penalty simply pays back the government bonus you receive on your savings, it actually means you'll repay the bonus plus an extra 6.25% of your own money.
Under the original terms, the withdrawal penalty would work like this: you pay in £1,000 to your lifetime Isa, receiving a government bonus of £250, leaving you with £1,250.
If you withdraw that same £1,250, you're charged 25%, which is £312.50. Despite originally paying in £1,000, you'll only get £937.50 back.
Under the new terms brought in due to the coronavirus crisis, the 20% withdrawal penalty only takes back the government bonus.
Using the same example, you pay in £1,000 and receive £250 from the government. If you withdraw £1,250, a 20% penalty sees you lose £250.
This reduced penalty is set to remain in place until 5 April 2021.
While a 25% government bonus to top up your cash can make a huge difference in bumping up your savings balance, there are quite a few caveats to consider before opening a lifetime Isa.