MARTIN Lewis has called for change as he warns of “absolutely ridiculous” penalty on a popular savings account.
The MoneySavingExpert.com founder appeared on Virgin Radio UK and spoke about the unfair aspects of Lifetime ISAs.
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Lifetime ISAs are often used by first-time buyers to get on the property ladder.
But the home must cost less than £450,000 – a threshold that has remained the same since 2017 despite rising house prices.
If savers use the money to buy a property that is over the scheme’s £450,000 limit they face a 6.25% withdrawal penalty.
This means that someone who has saved £20k could face only getting back £18,750 of their money if they choose to take it out.
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The consumer champion explained how he recently brought up the issue of the savings account charges with Chancellor Jeremy Hunt.
Speaking to Chris Evans on his breakfast show, he said: “Many people now are, because they have been priced out over the limit, having to take their money out and pay the penalty to the state, and it’s absolutely ridiculous.”
He went on to say that he told the Chancellor it was “unfair” that the state was “diminishing” the deposits of first-time buyers and that he thinks the charge should be stopped.
Martin said that while the chancellor did not confirm the penalty would be stopped he said he thinks by his reaction there is a “70% chance” it could be.
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Chancellor Jeremy Hunt appeared on last week’s episode of The Martin Lewis Money Show Live.
In response to Martins’s comments about the Lifetime ISA penalty, he said: “I’ve now started to make my plans for the Budget, which is on 6 March, and I absolutely hear what you say on that.
“And, you know, consider the Chancellor properly lobbied on that point.”
Martin also urged anyone aged 18 to 39 who doesn’t own a home to put £1 into a Lifetime ISA.
He said: “To use a Lifetime ISA as a first-time buyer the product has to have been open for a year.”
The money guru said you don’t need to put any more than that in initially but it is good to “get the clock ticking” on the account for the future.
What is a Lifetime ISA?
A Lifetime ISA (LISA) is a tax-free savings product, which the government launched to help people get on the property ladder or save for retirement.
Brits between the age of 18 and 39 can open a Lifetime ISA but once you have one you can keep saving until you are 50 years old.
You can save up to £4,000 a year and the government will then add a 25% bonus on top, effectively giving you free money.
It is still worth it even if you cannot save the full £4,000, for example, if you can only manage to save £1,000 a year, the government will still add in £250.
However, if you save the full £4,000 you’ll get an extra £1,000 on top.
If you opened one at age 18 and saved the maximum amount for 32 years you’d get £32,000 of free government cash.
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The money in your LISA can be used either towards a first home worth under £450,000 or towards retirement once you’re over the age of 60.
If you’re using it for a property, you’ll need to have had the account for at least 12 months before you can take the cash out.
