If you are saving for your first home or retirement, a Lifetime Isa could give your nest egg a boost. But beware problems if you try to access your cash early.
The Isa was launched in April 2017 and any deposits count towards your annual £20,000 Isa allowance.
You can save up to £4,000 a year and the Government will then add a 25 per cent bonus worth up to £1,000. So if you save the maximum £128,000 over 32 years you will receive an extra £32,000.
The Lifetime Isa lets you save up to £4,000 a year and the Government will then add a 25 per cent bonus worth up to £1,000
The Isa is open to those aged 18 to 39 and you can save into it until you are 50. You can put the money into stocks or shares or leave it in cash.
However, if you withdraw your cash for anything other than buying a house or retirement, there is a punitive charge.
The early exit fee had been cut to 20 per cent during the pandemic to help young investors who could need to withdraw cash to help with daily expenses.
But the charge will rise again on April 6 to 25 per cent.
This means savers will not only lose the government bonus but some of their own money too.
So, if you take out £1,000 – £800 of your own savings plus £200 bonus – you will end up with £750 after a £250 exit fee, and will have effectively lost the entire £200 government bonus and £50 – or 6.25 per cent – of your own money.
The lower 20 per cent fee meant you only lost the top-up and did not end up with less than you put in.
Nathan Long at broker Hargreaves Lansdown says ‘The extra penalty just kicks people when they’re down and acts as a disincentive to save.’
Few providers offer cash Lifetime Isas. The top rate is 0.85 per cent with mobile phone app Moneybox.
After a year it falls to 0.5 per cent. Nottingham Building Society pays 0.8 per cent, Paragon Bank 0.5 per cent and Skipton BS 0.1 per cent.
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