The Lifetime ISA (LISA) was officially launched in April this year, but it was only in June that a cash version became available. Until that point, savers could only invest in stocks & shares if they wanted to benefit from the Government top-up, so it's little wonder that they've been clamouring to open the cash version in the months since – and they've been doing so in their thousands.
Figures from Skipton Building Society show that over 42,000 people have now opened a cash LISA since it was launched, as younger savers seek to build their pot for a first home or retirement. However, it's proving particularly popular among first-time buyers: 86% of Skipton's customers opened the LISA to save towards their first home, with 34% of 18-24 year olds expecting to save for one-two years before buying, and 41% expecting to buy in three-five years' time.
"This sends a real signal of intent from our younger members that despite increasing house prices and squeezes on our wallets they are making a determined effort to get the keys to their first home," said Kris Brewster, head of Products at Skipton Building Society, "and we are pleased to offer a product that is helping to encourage future homeowners to save towards this significant milestone.
"Since launching the UK's first cash Lifetime ISA in June, there continues to be a high level of interest in the product. We believe it 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 – and all tax-free."
Skipton's LISA allows up to £4,000 to be deposited per year (as per LISA rules), can be opened online and pays a rate of 0.50%. That may not sound like a lot, but it isn't about the rate – the real draw of the LISA is the 25% Government bonus, which means that if you invest the full £4,000 each year, it'll be topped up to £5,000.
This could go a long way to helping you buy your first home. Skipton's calculations show that a 25-year-old who maximised the annual contribution for eight years could have a pot of £40,776 by the time they're 33, higher than the average first-time buyer deposit and potentially bringing your dream of homeownership even closer. As an added bonus, savers who then decide to take out a first mortgage with Skipton will receive £250 cashback, which could be a great help when all those moving costs start adding up.
However, while it's certainly got a lot of benefits, the interest rate could be a drawback for some. Indeed, it doesn't even come close to the current rate of inflation, which means that your savings are technically being eroded in real terms. That's why a lot of people could be tempted by a stocks & shares LISA instead, particularly those who are thinking truly long-term and wish to build a pension pot.
This kind of LISA still comes with the Government bonus, but the potential returns could be far higher. Stocks & shares ISAs continually outperform their cash-based counterparts, and although the risks are far higher, they could be worth considering for someone with a long-term view, as you'll have plenty of time to weather any volatility in the market. Just make sure you seek professional advice before you take the plunge, and if you're not comfortable with risk – or you're only looking to save in the short-term – the cash LISA should still be considered.
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.