It's been announced that Skipton Building Society will launch the UK's first cash Lifetime ISA (LISA) on Thursday 8 June at 9am, offering savers an alternative to the riskier stocks & shares versions that have been the only LISAs available so far. Is it time to get your cash ready to invest?
The Cash Lifetime ISA can be opened online with just £1 and pays an annual interest rate of 0.50% (variable), double the current base rate. It may seem low, but as the only Lifetime ISA with a high street presence it could prove invaluable for many savers – and that's before the 25% bonus is taken into account!
As with all LISAs, a Government bonus of 25% will be applied, giving your savings a valuable boost to help you get one step closer to buying that all-important home. Indeed, Skipton's calculations show that a 25-year-old who invests the maximum of £4,000 a year for eight years would have an estimated pot of £40,776.53 by the age of 33, helped in no small part by the 25% top-up, which could go a long way to buying your first home.
Skipton has added an extra perk into the mix, too, as first-time buyers who then decide to take out a mortgage with the provider will receive £250 cashback, in addition to any existing mortgage offers, which could be a great way to lower the upfront costs of moving.
Kris Brewster, head of Products at Skipton Building Society, said that the LISA could "make a real difference to a new generation of savers by assisting them in getting a foot on the property ladder", and this new product certainly offers savers a risk-free method of doing just that. But should you consider the alternatives as well?
It's great that savers will soon have the option of a cash LISA, but it can't be denied that the rate on offer isn't exactly high. Indeed, our data shows that the average ISA rate currently stands at 0.87%, while the best cash ISAs available pay up to 1.05% for an easy access deal (from Virgin Money), 1.15% for a one-year ISA (from Al Rayan Bank) or 1.80% if you're willing to lock your money away for five years (from Paragon Bank), so on the face of it, there are certainly better alternatives out there.
However, none of those come with the Government bonus, which is of course a huge incentive, and is something that would be invaluable to many first-time buyers. If on the other hand you intend to use the LISA to save for your pension instead, a stocks & shares LISA may be preferable. This is for the simple reason that stocks & shares versions offer the potential for far greater growth, and although they also come with additional risk, saving for the long-term means any volatility should even out.
Then there's the Help to Buy ISA, which is still worth considering. Indeed, the top Help to Buy ISA pays an impressive 2.25% (from Barclays), and it comes with the same kind of Government bonus, but you haven't got that long to take advantage.
You'll only be able to open a Help to Buy ISA until 30 November 2019, after which they won't be available to new savers (but if you open your account before then you can keep saving into it until 30 November 2029, though you'll have to claim your bonus by 1 December 2030).
Rachel Springall, finance expert at moneyfacts.co.uk, spells it out: "It's great to see Skipton BS provide savers with a cash LISA, and it may appeal to those who are not comfortable applying for a stocks and shares version – particularly those looking to save over the short-term, such as first-time buyers. The £250 will be a great incentive for those who get a mortgage with Skipton BS, which could be really helpful if funds are tight.
"However, there are Help to Buy ISAs available paying rates well above 0.50%, and savers can still acquire the Government 25% bonus when they buy a home – but these won't be around forever.
"Those savers looking to use a LISA for retirement may be wiser to seek out a stocks and shares version where they could see much higher growth over the longer term."
So there you have it! The newest addition to the LISA market could well be beneficial for first-time buyers, but don't overlook other options. If you're thinking of investing in Skipton's cash LISA, it's worth registering on skipton.co.uk – not only will you be reminded when the product launches, but Skipton will be offering the product exclusively to those on this registration list until tomorrow, giving you early access to the product.
Find out more about the Lifetime ISA by reading our guide.
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.