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A new market-leading Lifetime ISA (LISA) offering a rate of 1.40% AER has been launched this week by Moneybox in partnership with OakNorth Bank.
This is a significant move for savers as the Lifetime ISA market currently has low levels of competition, with many providers opting to offer Help to Buy ISAs as an alternative product for those saving for their first home. In addition to this new Lifetime ISA, there are currently three providers offering LISAs; these are Newcastle Building Society offering a rate of 1.10% AER, Skipton Building Society offering a rate of 1.00% AER and Nottingham Building Society offering a rate of 1.00% AER.
As Help to Buy ISAs will no longer be available to new applicants after the 30 November 2019, the phasing out of this product from the market could see an increase in the number of Lifetime ISAs available.
A Lifetime ISA is a Government-backed tax-free savings account that allows savers to save for their first home, save for retirement or both. A Lifetime ISA can only be opened by those aged 18-39, it allows savings of up to £4,000 per year to be deposited and benefits from a 25% Government bonus. The Government bonus is only added until the account holder turns 50 years old, after which they can no longer deposit funds into the account, but interest can still be added to the savings. The funds from a Lifetime ISA can only be withdrawn without incurring a penalty if the saver is using it to buy their first home or from their 60th birthday.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “There has not been as many providers opting to offer a cash LISA since they were announced, so its great news to see a new account launched to give consumers more choice. The most recent launch from Moneybox (in partnership with OakNorth Bank) offers 1.40%, the current market-leading rate in the cash LISA market, but some savers may prefer to go with a more recognised brand, even if it means a slightly lower interest rate. It will be interesting to see whether any other brands decide to enter the market off the back of this new deal.
“Still, it’s worth pointing out that OakNorth Bank has been a great contender in the savings market, so it’s clear to see why unfamiliar brands shouldn’t be discounted.
“LISAs are a good alternative to a Help to Buy ISA, not just for a first home but also for retirement, however they do carry different rules for later life withdrawals, so savers are best to read up on the workings before they invest.
"Providers appear to have been more supportive with Help to Buy ISAs compared to LISAs. Once the Help to Buy ISA scheme closes this November, savers will be able to continue investing until the end of November 2029, but the Government bonus must be claimed by 1 December 2030.”
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