What’s A Lifetime ISA?
A Lifetime ISA (Individual Savings Account) is a type of account introduced in the 2017-18 Budget.
A Lifetime ISA is an individual savings vehicle that offers a 25% government bonus on all investment for up to £4000 each year until age 50 and only needs one lump sum contribution at the outset.
The idea behind it is that some people think they might need money sooner rather than later but still want protection against inflation, so this kind of thing will be perfect for them.
You can withdraw your contributions tax-free anytime before you reach 60 years old if you’re retiring or after 12 months without any withdrawals from your account if not, which means it’s more flexible than other types of accounts when saving towards retirement.
How Does The Bonus Work?
The government bonus is 25% of the amount invested in a Lifetime ISA, up to £4000 each year.
It’s calculated as an annual percentage rate1 (APR) and paid on top of any investment gains made within the account so that it can add significant value over time.
The maximum bonus you’ll receive from the Government at age 50 will be £8000 – which is worth approximately £16000 by that point based on average historical rates of return for investments such as cash deposits or shares.
You don’t need to make continuous contributions during your lifetime.
Still, suppose you stop saving after two years. In that case, there won’t be much chance to build up your retirement income without making additional lump sum payments yourself because only one lump sum contribution counts towards your Lifetime ISA’s total.
Can You Save Into A Different ISA During The Same Tax Year?
Yes, you can save into a Cash ISA and Lifetime ISA in the same tax year as long as they’re with different providers.
You won’t be able to withdraw from your Lifetime ISA until age 60. Still, you will if you need money before then because it’s not an account regulated by the Financial Conduct Authority2 (FCA) or covered by FSCS3 protection.
Who Can Open A Lifetime ISA?
You can open a Lifetime ISA if you’re 16 or over and haven’t used the maximum amount of allowances in previous years.
The current contribution limit to your Lifetime ISA is £4000 per year, up from £2000 in April 2017.
It’s worth remembering that this doesn’t affect how much money you might be able to save into other tax-free accounts like personal pension because there are no limits on these at all.
There is also the risk that changes will happen regarding what pension providers allow people to invest their retirement funds in once they get older, so it may not provide as good an income when someone retires, but this isn’t something that has been discussed yet by custodian banks.
You have to choose a “custodian” for your Lifetime ISA.
They’ll keep the money invested in it safe and make sure that you’re able to access it when you need it.
You might be tempted by offers from banks or building society, but if this is an investment that’s supposed to last well into retirement, then it’s worth considering that these firms can go bankrupt or fall out of favour, so it may be best to ask for professional advice on this.
You have to make sure you’re aware of the charges and annual fees because some providers are much better than others. It doesn’t cost anything to sign up with them, but they could eat into your investment if they charge high fees.
Can You Have A Joint Lifetime ISA?
If you’re married/has a civil partner, then it’s possible to open one account for both of you and invest up to £20k each.
There are some restrictions on what this money can be spent on, but in general, the idea is that couples should have enough savings separately from their home, so they don’t rely solely on either partner when they retire.
Can You Withdraw From A Lifetime ISA?
Yes, you can withdraw at any time for whatever reason, but you’ll be hit with a 25% withdrawal charge.
Withdrawals are also tricky because there’s a maximum amount of money you can take out each year; if this is an allowance that suits you, great, but remember that the interest rate will be lower than it would be for traditional savings account or ISA, so think about whether these terms suit you before making a decision.
Help to Buy ISA or Lifetime ISA?
You can only open a Lifetime ISA if you’re under the age of 40, and that is one reason why many people choose to go with a Help To Buy ISA instead.
If you are over the age of 40, then it’s worth considering whether or not this will suit your needs; for example, if you have medical conditions or terminal illness but no savings because you’ve been living off an inheritance from parents who passed away recently (e.g., cancer) then Help to Buy might be more appropriate than a Lifetime ISA as in some cases there may be limitations on withdrawing money from these accounts.
You can only use the Help to Buy ISA for your initial deposit in your house purchase as a first-time buyer, whereas Lifetime ISA is available for anything – even if it’s not your house.
The other point about lifetime ISA against help-to-buy is that they give them both tax benefits.
By default, these two investment choices would gain interest on every penny, but the lifetime ISA offers more flexibility.
Lifetimes are also much better if you’re saving for a child or grandchild who is just born, which will make it easy to open an account in their name as they grow up and then use this money towards tuition fees at university etc.
However, these accounts have limits on them, too, because there’s no guarantee that rates of return would always be higher than inflation, so with help-to-buy, people can withdraw their savings once they’ve saved enough. In contrast, lifetimes cannot do this – earning interest without any risk of losing principal.
Can you lose money in a Lifetime ISA?
No, lifetime ISAs are 100% government-back.
Is a Lifetime ISA worth it for retirement?
Lifetime ISAs may be worth considering if you want to save for children’s education, but they are not the best choice when it comes to saving for retirement.
Can you put more than 4000 into lifetime ISA?
You will only be able to invest up to £4000 each year.
Is a lifetime ISA better than Help to Buy?
It depends on your goals and circumstances.
The Lifetime ISA can only be used to invest in stocks and shares, cash or a mixture of both. It cannot be put into gold or property, meaning that it is essential for people to think about how they want their money invested before opening an account.
This will have lasting consequences on what the investment returns are like over time, depending on the amount of risk taken.
Suppose you have a Lifetime ISA and are investing in cash. In that case, your interest rates will not be higher than inflation, so it’s worth considering investing in stocks or shares with this account because you’ll get more returns over time – but remember that there is always investment risk as this investment might not perform as anticipated.