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Do you want to put money away for your first home or retirement? Then a Lifetime ISA could be a good option for you. We explain what they are, how they work, who can get one, the pros and cons, what else you need to consider and - most importantly - how to find the best lifetime ISA.
If you’ve already done your research and looking for the best lifetime ISA rate, then read on: we have the best lifetime ISA picks this month. If you’re new to the world of ISAs and Lifetime ISAs in particular, we will explain all.
For more of November’s top cash LISAs and the best stocks and shares LISAs, read on.
A Lifetime ISA, or LISA for short, is a type of account designed to encourage people to save for their first home or their retirement.
Anyone aged 18-39 can open a Lifetime ISA and you can save up to £4,000 each tax year into your LISA and the government will give you a 25% bonus on your contributions, up to a maximum of £1,000 per year. This government top up definitely makes it a product worth considering to boost your savings. And they’ve proved popular; since they were introduced in 2017 an estimated half a million people in the UK have paid into one.
But with so many providers offering them you’ll want to make sure you pick the best Lifetime ISA.
You don’t have to make life’s big financial decisions alone. Get the right IFA for you today with our partners at Unbiased.
You can save into your LISA by putting in a lump sum, regular savings or just putting away money when you can. And the government will add a 25% bonus of up to £1000 a year until you’re 50. So this means if you save the maximum £4,000 in a year you’ll get the full £1,000 bonus.
Whether you pay in a lump sum or regular payments your bonus will be paid monthly, provided you’ve contributed that month. And it usually takes between four and nine weeks to hit your account.
There are two types of LISAs – cash LISAs and stocks and shares LISAs. But bear in mind that while you can hold more than one LISA at any given time you can only pay into one LISA in each tax year.
You can use the money you save in your Lifetime ISA to buy any home (not just new builds) worth up to £450,000 or less. But this cap hasn’t changed since the Lifetime ISA was introduced in 2017, despite house prices rising 35% in that time.
As a result, the government was looking at proposals to raise the cap, which would make the schemes more viable for people buying homes in London and the southeast, as well as adjusting the penalty in the event you didn’t use your savings to buy a home or retire. However, while we hoped these issues would be addressed over the years, at the most recent opportunity in the Spring Budget of 2024, this did not happen.
If you want to put in the full £4000 allowance a year and split payments equally over 12 months you can contribute £333.33 into your LISA per month. And if you open a LISA at 18 and add the maximum deposit of £4,000 per year until you’re 50 you’ll get the maximum bonus of £33,000.
But before you start putting all your spare cash into a LISA it’s vital you know you can’t treat it like an easy access savings account. That’s because the money has to be used towards the purchase of your first home (and you’ll need to meet the criteria outlined below) or for your retirement. And if you want to take it out sooner for any other reason apart from if you’re terminally ill you’ll pay a penalty.
Looking for the best Lifetime ISA? Here are our cash LISA top picks for this month:
| Provider | Rate (AER variable) | Accept transfers from other types of ISA? | How to open/manage | Interest paid |
|---|---|---|---|---|
| Moneybox | 5% (rate drops to 4% after 12 months) | Yes (only if you haven’t had a Moneybox LISA before) | App | Monthly |
| Tembo | 4.75% | Yes (Only from existing LISAs) | App | Monthly |
| Bath Building Society | 3.69% | No | Online/ branch | Annually |
| Paragon | 3.51% | Yes (Only from existing LISAs) | Online | Annually |
| Beehive Money (Nottingham Building Society) | 3.30% | Yes (Only from existing LISAs to its Homebuyer LISA) | App | Annually |
When it comes to stocks and shares LISAs it’s vital you know your investments can go up and down. But providing you’re happy with the risk involved you’ll want to make sure you choose the right provider. You should always check any fees before taking the plunge when you’re choosing the best Lifetime ISA.
Here are our top picks for stocks and shares LISA providers this month.
If you’re looking for a stocks and shares LISA AJ Bell offers an easy to manage account. You can access your account via its app or online and you can ask for help from its investment experts. You’ll need to invest a minimum lump sum of £500 or set up a monthly direct debit from £25 a month. AJ Bell charges an annual fee of 0.25%. For more on its charges visit AJ Bell.
While with Hargreaves Lansdown you can start investing in a stocks and shares LISA from £100 or £25 a month. And you can check your investments anytime online or with the HL app. You’ll pay an annual charge of 0.45% for holding investments and other charges apply. To find out more visit Hargreaves Lansdown.
Another option for a stocks and shares LISA is Nutmeg. It requires a minimum deposit of £100. Fees vary depending on which fund you choose and how much you have invested. Check nutmeg for more details. You can manage your LISA online or via its app.
And Moneybox is worth considering too. It requires a £1 minimum deposit. Their fees are: £1 per month subscription, 0.45% platform fee; 0.12%- 0.3% fund provider fees. You can manage your LISA via their app too.
If you’re looking for investment advice speak to an Independent Financial Adviser (IFA).
You don’t have to make life’s big financial decisions alone. Get the right IFA for you today with our partners at Unbiased.
The advantages of a LISA are:
Firstly, the biggest advantage is the bonus rate of 25% which is extremely generous. The bonus you’ll receive is on contributions not on interest or investment growth. But once your bonus is in your account it will be treated like the rest of your savings. This means you’ll make interest on it if you have a cash LISA, or you’ll earn investment growth (or loss) if it is an investment LISA. However to get the most out of your LISA make sure you shop around to find the best Lifetime ISA – see our top picks above.
Secondly another benefit is that you can use the Lifetime ISA money to buy any home (not just new builds) worth up to £450,000, or put it towards your pension income after you reach 60.
Saving to buy your first home? See our calculator to see how much you can afford to borrow
It might sound like opening a LISA is an obvious choice if you’re planning to buy your first home but there are some factors you’ll need to consider:
As a result, a Lifetime ISA is only really suitable if you want to use it to help buy your first home, or to save for retirement.
It’s important you spend time finding the best Lifetime ISA but how do you do this? Firstly you’ll need to think about whether you want to open a cash LISA or a Stocks and Shares LISA.
With cash ISAs you’ll want to check where you can get the best rate of interest and any other terms – see our top pics above. While with a Stocks and Shares LISA you’ll want to check things like fees, the minimum investment and any other terms.
Once you have a LISA remember that you can always switch provider if it means getting a better deal. Just like with many saving accounts, the interest rates on cash LISAs will go up and down and you’ll want to make sure your money is in the best place. So keep tabs on your account and be prepared to switch to a different provider if you want to make sure you get the best deal. You can also switch providers if you have a stocks and shares ISA.
Once you’ve picked the best Lifetime ISA for you, what next? You’ll need to apply directly to the provider to open your account, doing this online is usually easiest.
You’re allowed to transfer your LISA between providers and it shouldn’t take longer than 30 days to do this. But some providers don’t offer this service. So when you’re researching the best Lifetime ISA make sure you check that switching is permitted. And you’ll need to request that your LISA provider completes the switch for you rather than trying to withdraw the cash yourself.
You can withdraw your savings to buy your first home, providing you meet the criteria. Or when you reach 60 or if you’re diagnosed with terminal ill health. But you’ll have to pay the penalty of 25% on your savings if you want to withdraw it in any other circumstance.
Yes. You can use your LISA savings if you’re buying through Government schemes like the Help to Buy Equity Loan scheme, Right to Buy and Shared Ownership. However bear in mind that if you’re buying with a shared ownership scheme the £450,000 price cap applies to the full sale price of the house not just the share you initially buy.
If you’re buying a house with someone else you can both save into a LISA and use both sets of savings and bonuses towards your purchase providing you both meet the criteria. This means you’ll both need to be first time buyers and purchasing a property together costing £450,000 or less. If one of you has previously owned a property that person can’t use LISA savings towards the purchase. But if you’re buying with someone who has owned a property before you can still use your LISA savings towards buying a property together.
If you’ve ever owned a property before even if it’s not in the UK you can’t use your LISA savings towards buying a home. And this even includes if you inherited a property or even a share of one.
To be able to use your LISA savings towards a home purchase it must cost £450,000 or less. And you’ll need to take out a residential mortgage. So this means you can’t be a cash buyer or be buying a property that you plan to rent out.
If you want to use your LISA savings and the bonus towards buying your first home your account will need to have been open for at least a year. So if you’re hoping to get on the property ladder within the year and you haven’t opened a LISA yet you won’t be able to use this scheme. So if you’re considering buying your first home in the future it’s a good idea to open an account as soon as possible – you only need to deposit £1 to open one. Then you can always decide further down the line if it’s the right place for your savings but at least you will have started the clock ticking.
So you’ve been saving diligently into the best Lifetime ISA and now you want to use the cash – what happens next? When you’re buying a house and want to use your LISA savings you should ask your LISA provider to transfer the money directly to your conveyancer. That’s because if you withdraw it yourself you’ll pay the 25% penalty charge.
You’ll need to complete your purchase within 90 days of your conveyancer receiving the withdrawn funds from your Lifetime ISA. However if it’s taking longer than 90 days to go through your conveyancer can write to HMRC for an extension. But if your purchase doesn’t go through your conveyancer must return all of the funds to your Lifetime ISA.
What if you’re planning to use your LISA for retirement? These rules could change but currently:
You can hold a Help to Buy ISA and a Lifetime ISA. But if you hold both, you can only use the government bonus towards buying a house via one of the accounts.
You can transfer a Help to Buy ISA into a LISA but the amount you transfer will count towards your yearly £4,000 limit. For example, if you transfer £3,000, you can only save another £1,000 in that year.
While you may be able to get a bigger bonus with a LISA (the maximum possible bonus with a Help to Buy ISA is £3,000) LISAs offer less flexibility if you want to withdraw your money. With LISAs you’ll need to pay a penalty if you withdraw your money for any reason other than buying a home or for your retirement. This isn’t the case with the Help to Buy ISA.
Remember, there is no guarantee that future governments will maintain these offers, which means there could be a risk to bonuses. And it’s not easy to access your money tied up in a LISA – the withdrawal payments are expensive, so don’t save more than you can afford to lock away. See our guide on government schemes to help you buy a home.
If you think you might need to access your savings you should consider another form of savings accounts.
When you’re ready to buy your first home, ask your LISA provider to transfer the money from your LISA directly to your conveyancer, not to you. (If you withdraw it into an account in your name, you’ll pay a hefty withdrawal charge). All your savings, including your bonus, will be available to use when you exchange.
You’ll usually need to save a deposit of at least 5% – and using a Lifetime ISA may offer you a big boost in getting there. And you’ll need to shop around for the best mortgage too. FInd out more in our guide on First time buyer mortgages.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
Mortgage service provided by London & Country Mortgages (L&C), Unit 26 (2.06), Newark Works, 2 Foundry Lane, Bath BA2 3GZ, authorised and regulated by the Financial Conduct Authority (FRN: 143002). The FCA does not regulate most Buy to Let mortgages. Your home or property may be repossessed if you do not keep up repayments on your mortgage.
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of Seopa Ltd, for home insurance, authorised and regulated by the Financial Conduct Authority (FCA FRN: 313860).
HomeOwners Alliance Ltd is an Introducer Appointed Representative (IAR) of LifeSearch Limited, an Appointed Representative of LifeSearch Partners Ltd, authorised and regulated by the Financial Conduct Authority. (FRN: 656479).
Independent Financial Adviser service is provided by Unbiased, who match you to a fully regulated, independent financial adviser, with no charge to you for the referral.
Bridging Loan and specialist lending service provided by Chartwell Funding Limited, registered office 5 Badminton Court, Station Road, Yate, Bristol, BS37 5HZ, authorised and regulated by the Financial Conduct Authority (FRN: 458223). Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.
