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Should I get a Lifetime ISA?

The new tax year is now upon us and so too is the launch of yet another ISA - the lifetime ISA.  First things to remember is that this tax year the ISA limit (cumulatively for what you contribute to all kinds of ISA in 17/18) is now £20,000.

If you are new here, or not quite sure what an ISA is, essentially it is a tax-free savings account. ISA stands for Individual Savings Account and are available to both children (in the form of junior ISAs) and adults.  The amount you are able to save each year is called the ISA limit. It is important to understand that it is how much you contribute per year and that withdrawals are not taken into consideration. For example if you contributed £20,000, withdrew £4000 before the year was up, you could not re-contribute the £4000 in the same tax year as you are seen to have contributed £20,000 (the current ISA limit).

Chris and I have contributed to our Help to Buy ISAs ever since they launched in December 2015. We were lucky to have a great interest rate when we first open (4%), but sadly it has since been reduced. With a new product on the market we've been deciding whether it is worth switching from a Help to Buy to a Lifetime ISA.

They are two similar, but distinct products so it is important to consider who you are as a saver and which better fits your needs and financial goals. To help you better make this assessment we have made a table comparing the two ISAs. 

So which is the better account. Well that depends on a few things if you are looking to buy in the very near future and not go over the property value limits then Help to buy is your friend. The same goes if you are an older first-time buyer again Help to buy is for you. 

However, if your a young millennial just starting to save for a house then the Lifetime ISA is for you, you can save more, gain more bonus and have the flexibility of lump sums rather than rigid monthly payments. You also have the option of stocks and shares which should only be considered if you are looking to invest for at least 5 years (in order to mitigate any fluctuations in the market impacting short-term value). 

However, there is one key issue with the Lifetime ISA though is that so far very few providers are confirmed to be offering it. 
The following are the list of confirmed providers: 

- Hargreaves Landsdown.
- Fidelity
- Nutmeg
- The share centre

In addition all of those who have said they will are only offering it as a stocks and shares option. We were both initially pretty put off by this but after doing some further reading into the topic it seems that the reason why the big banks are slow on the band-wagon is because the Government was so late in giving them the final rules and details on the account (they only finalised the details in mid-March)

Skipton Building Society now offer the very first cash lifetime ISA !! While this is certainly more appealing than the stocks and shares versions previously available. The interest rate is 0.5% so leaves a lot to be desired. We are still going to hold out for a bit, whilst many of the big banks have said they are not interested in offering the product there are a few including Barclays, HSBC, Virgin and, first direct are still considering it. We are waiting until they provide more information as if they do launch the product they are likely to provide better rates of return than Skipton's 0.5%. 
Though if the money you plan on putting into the Lifetime ISA is currently in an account with a lower interest rate, then it may be worthwhile opening the account contributing your annual allowance, and then if another providers open with better rates transferring to the new provider (which incurs no penalties). 

It is for that reason it may be worth waiting a little while, seeing what the big banks do (don't forget if you have it in cash you get the £75,000 FCSC backing that stocks and shares don't get). It is likely that banks and building societies will start offering the Lifetime ISA later in the summer. Plus as lifetime ISAs are not dependent on monthly contributions if you think that is the direction you want to go in you won't be limited in how much you can contribute this tax year (like you would with help to buy if you missed the monthly contributions). If you choose to make the switch from Help to Buy to lifetime you are able to transfer you Help to Buy balance without it counting towards your annual contribution limit. 

For Chris and I our plan is to wait out with the thought that the big banks will be offering a Lifetime ISA in cash form later this year. We then intend to contribute the £4,000 limit in a lump sum. In the mean time we will not contribute anything to our Help to Buy ISA during this tax year. If it looks like the banks are not going to open lifetime ISAs this tax year, in order to not miss out on the bonus we would open it with one of the stocks and shares providers and opt for a cash fund for example fidelity have a cash park which allows you to hold money in a stocks and shares ISA in cash form (though presently it pays no interest, the bonus makes it still worth switching for us). 

Are you planning on getting a LISA or are you going to stick to a H2B, or perhaps neither. Let us know you plans for saving for a house deposit. 

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