FAMILIES could be losing out on tens of thousands of pounds of FREE cash to boost their savings, said money expert Holly Mackay.
A cost of living crisis is leaving Brits strapped for cash, but these two saving schemes could help you make the most of any spare money you do have.
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That’s according to Holly Mackay, founder of savings and investments comparison website Boring Money, who has decades of experience giving money advice.
She’s one of the experts on our Squeeze Team panel – here to help you save money and give advice on rising bills and costs.
If you’re worried about making ends meet, are struggling to pay off your debts or don’t know how best to manage your cash, get in touch by emailing [email protected].
Ms Mackay said making the most of government-backed savings schemes could help make your money go much further.
Here’s what you need to know:
Lifetime ISA
Lots of people don’t know about Lifetime ISAs (LISAs), Ms Mackay said – but that could mean they’re throwing away thousands of pounds of free money.
A LISA is a savings account that anyone between the ages of 18 and 40 can open to save for buying a first home or for their retirement.
You can put in a maximum of £4,000 a year until you’re 50, and the government adds an additional 25% bonus onto what you put in.
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So if you put in the full £4,000 a year, the government would give you £1,000 annually. You can’t pay in any more money after you are 50 years old.
“If you open an account at 18 and pay the maximum in for 32 years, you could get a boost of up to £32,000 from the government – but that’s assuming the product remains available and isn’t discontinued by a future government,” Ms Mackay said.
But savers should be aware that there are some downsides to using the scheme.
Mackay said: “Just be sure that you are definitely going to use this money for a property or retirement – if you want to take the cash out for anything else there are some hefty penalties.”
You’ll pay a 25% penalty if you withdraw money for any reason other than buying a first home, or if you transfer the LISA to another type of Isa before age 60, effectively wiping out your bonus.
Self-invested personal pensions
A self-invested personal pension (Sipp) is a pension you set up yourself to put aside money for your retirement, rather than through your workplace.
You can choose where your money is invested – in funds, shares, or trusts for example – and can put in a maximum of £40,000 per year.
“It’s straightforward to set up your own pension,” Ms Mackay said.
“It’s easy to set one up online, and there are even apps that can help you save into it.”
If you are a basic rate tax payer paying into these pensions, then for every 80p you put in, you’ll get 20p from the government through tax relief.
Putting just £10 a month – the price of three takeaway coffees – into your pension between the ages of 30 and 65 could leave you with a nest egg of £8,800, based on a 4% growth on your investments.
“Of this total amount, £840 has come from the government in the form of tax relief,” Ms Mackay said.
This could rise to thousands of pounds of free cash from the government if you increase the amount you are putting in per month, Ms Mackay added.
But there are terms and conditions savers should understand before signing up: “You can’t take your money out of the pension once you have invested it until you’ve reached retirement.
“It’s a much more rigid way of saving, that’s why people have to be sure that they are happy to invest for the long term – but trade off is that you get that extra contribution from the government.”
Here’s seven things to know about your pension – including how to track down a lost pot.
Here’s how you can retire at 55, according to one pensions expert.
Take our money MOT and save yourself up to hundreds of pounds on your bills.
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