Today marks the launch of the second-ever cash Lifetime ISA (LISA), by The Nottingham, following Skipton BS' launch last June, shortly after the LISA was first introduced in April 2017.
Both cash deals pay the same annual interest of 1.00% AER, with savers able to get a 25% bonus from the Government on top of this, worth up to £1,000 per year (based on the maximum LISA allowance of £4,000). These accounts, which are still a novelty, are specifically designed to help people save up for their first home or retirement, or both.
As such, they come with a fair amount of restrictions. For one, only people aged 18 to 39 will be able to open a Lifetime ISA, and the money in it can only be used for the purchase of a first home worth up to £450,000 or once the account holder turns 60. Any access outside of this will result in a penalty that is larger than the bonus amount given (except in the case of terminal illness or death).
This means that anyone considering opening such an account will want to do some homework first, which is where our Lifetime ISA guide can come in. Savvy savers will also note that an interest rate of 1.00% is well below inflation, as well as being quite a bit below the current top one-year fixed ISA rate of 1.61% (expected profit rate, from Al Rayan Bank).
Indeed, separate analysis from Barclays, looking at regular stocks & shares ISAs, found that the likely average growth among those who'd invested the maximum ISA allowance every year from March 2000 to March 2018 would be much higher than even the top overall cash ISA rate of 2.30% (on Coventry BS' five-year fixed rate ISA deal). Taking into account a product fee of 0.5% per year, they estimated that on top of the total contribution of £101,979, savers would have accumulated £60,483 in growth when modelled against the performance of the FTSE100 and £58,814 when modelled using the UK Gilts All-stocks.
Given the higher number of stocks & shares Lifetime ISAs available and the fact that savers would want to be very sure they won't need access for any reason other than buying a house or retirement anyway, it may be worth the risk of investing in the stock market over the long term. While there is a chance that savers end up with less than they put in, depending on how their investments fare, the Government bonus would be added every year new funds are put into the account no matter what happens.
The most suitable account will of course depend on personal preferences, your attitude towards risk and individual circumstances. If you are interested in The Nottingham's cash LISA offering, note that for the time being you will only be able to open the account in branch. Skipton BS' offering, in contrast, can be opened online, as can a number of stocks & shares Lifetime ISAs.
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.