The lifetime ISA (LISA) was developed as a way to encourage people to save for their future, with the tax-free account allowing those under the age of 40 to save for their first home or retirement. Initially, only stocks & shares LISAs were available, but in June the first cash version was launched – and it's looking to be popular with savers.
Skipton Building Society has revealed that 28,000 people have now opened a cash LISA since the launch of the account in June, with thousands of younger savers looking to the future – and taking advantage of the generous Government bonus.
The figures show that 51% of those who've opened an account so far are under the age of 30, suggesting that many could be looking to save up for their first home. However, 6% are 39 years old, so it seems that people don't want to miss out on the chance to save for their retirement, either.
"Since launching the UK's first cash Lifetime ISA in June, there continues to be a high level of interest in the product, particularly from those who want to save for their first home," said Kris Brewster, head of Products at Skipton Building Society. "At Skipton, we believe the LISA could make a real difference to a new generation of savers, not only in helping them get a foot on the property ladder, but providing them with another option to help them save for their future too."
Skipton's account can be opened online, allows contributions of up to £4,000 per year and pays annual interest of 0.50%, but of course, it isn't about the rate. The main attraction of the LISA is the 25% Government bonus, which could make a huge difference to your pot: the provider calculated that a 25-year-old maximising the product's annual allowance for eight years will have an estimated pot of £40,776 by the time they're 33, which could easily cover a deposit for a first home.
However, it's worth pointing out that there's far greater earning potential if you opted for a stocks & shares LISA instead of a cash version, particularly if you're interested in saving for retirement. After all, with a rate of just 0.50% on Skipton's deal, you're still losing money in real terms thanks to the ravages of inflation (which currently stands at 2.6%).
There's a lot more risk involved with stocks & shares LISAs, but if you're investing for decades to come, you'll have plenty of time to ride out any volatility in the stock market. This should of course only be considered by those who are truly comfortable with risk and will require professional financial advice, but for those thinking long-term, it could be ideal.
For those saving for a first home, however, the cash version should still be considered, low interest rate or not. The addition of the Government bonus could make all the difference when it to comes to saving up for a deposit, and could mean you're able to take that first step far quicker than you would otherwise; find out more about the LISA by reading our guide, and see if it could be worth considering.
Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.