Should you still open a Lifetime Isa to save

Chancellor John Healey announced a new Isa in the recent Budget designed to assist first-time buyers. The First Time Buyer Isa will provide savers with a government bonus on their cash, similar to the existing Lifetime Isa, but it will not launch until April 2029. The maximum amount you can pay in yearly is set at £4,000. For prospective buyers who want to access a government top-up today, the Lifetime Isa remains the only option.

Laura Suter, the director of personal finance at AJ Bell, noted that the Lifetime Isa will remain open for new customers until April 2029. She stated that the Lifetime Isa remains the “only option” for those who want to save immediately. The maximum property purchase price is capped at £450,000, though the government resisted calls to raise this limit. Those holding a Help to Buy Isa can transfer it to the new product, provided they meet the specific deadlines.

Changes to Withdrawal Rules

The government has altered the Lifetime Isa to make it less risky for account holders. Instead of a 25% penalty, savers who buy a home worth more than £450,000 face a 20% penalty, allowing them to recover their original contribution minus the bonus. The First Time Buyer Isa differs by not charging a penalty; if funds are withdrawn without a house purchase, the bonus is simply forfeited.

While the new account is dedicated to first homes, the Lifetime Isa also serves as an extra vehicle for retirement savings. People aged 18 to 40 can open one and save until they are 50. The maximum possible bonus is £32,000 for the Lifetime Isa, compared to £20,000 for the new account. This dual purpose makes the Lifetime Isa valuable for groups that cannot rely on pension auto-enrolment.

Best Accounts Available Today

For those ready to open a Lifetime Isa, several accounts offer competitive rates. Moneybox offers a cash Lifetime Isa at a variable rate of 4.75 percent, including a fixed 1.95 percent bonus for the first 12 months. Plum offers a cash Lifetime Isa at 4.2 percent variable, which includes a fixed boost of 1.09 percent, though the underlying rate of 3.11 percent is stronger.

Investors looking for stocks and shares options can choose AJ Bell Dodl, which offers a rate of 3.8 percent variable on uninvested cash. Established platforms like Hargreaves Lansdown also provide access to a wide range of stocks and shares Lifetime Isas, catering to different levels of investment experience.

Existing Accounts and Transfers

The Lifetime Isa’s predecessor was a product called the Help to Buy Isa. This scheme closed to new applicants in 2019. However, current account holders can continue to pay money into the account. They have until November 30, 2029, to make further contributions. The Help to Buy Isa scheme officially closes on December 1, 2030. Eligible savers can transfer their existing Help to Buy Isa savings to the new First Time Buyer Isa. This transfer is possible if they meet the specific deadlines mentioned above.

Savers can use the government bonus from both accounts to purchase a first home. This means there is no harm in keeping an existing Lifetime Isa open. People may need to run both products simultaneously to meet their savings goals. You can only pay into one product each tax year.

Age Restrictions and Eligibility

Age limits create a barrier for some older buyers. You must be under 40 to open a Lifetime Isa. The new account does not impose this upper age limit. Contributions to a Lifetime Isa stop when a saver reaches the age of 50. The Lifetime Isa closes for new entrants from April 2029. This timing coincides with the launch of the new account. In conclusion, the new First Time Buyer Isa and the existing Lifetime Isa offer different options for first-time buyers, with the Lifetime Isa remaining available until April 2029.