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#HelpToBuy Isa v new Lifetime Isa: which is better?

house 20poundnoteBrace yourselves! A new financial product is available today. Yes, I’m overwhelmed with excitement too at the launch of the Lifetime Isa (or Lisa). Have you seen the size of the government bonus on this thing? Really, I haven’t had this much fun since they invented self-invested pensions!

Unfortunately nobody much else seems to share my enthusiasm for the poor old Lisa. So far only three companies have signed up to sell them from day one. Others may join later on but it doesn’t look like a vote of confidence. Nonetheless, with the potential to get up to £32,000 of free money, you’d be silly to ignore it.

The Lisa is basically a souped-up Help to Buy Isa (Individual Savings Account) aimed at giving first-time buyers a leg-up the property ladder. You can use it either to buy a house or as retirement savings. It’s open to those aged 18 to 39 (sadly I’m too long in the tooth) and the government gives you a £1 top-up for every £4 you save, up to £4,000 a year, until you’re 60. So the maximum bonus you get every year is £1,000. Some investment return – 25%!

This is much more generous than the standard Help To Buy Isa which over 850,000 savers now have. It too gives you a 25% bonus on your savings but the total bonus is capped at £3,000. Peanuts!

The devil is in the detail, of course. The Lisa comes with a whopping 25% penalty if you want get at your money for any reason other than buying a house before the age of 60. It also comes in two versions: cash or stocks and shares. The latter is where you need to be careful. If you’re saving for retirement, the stock market is great because time is on your side to ride out any downturns. But, if you want to buy a property in just a few years’ time, you don’t want to risk losing your pot on a short-term punt.

Those who are about to push the button on a purchase should perhaps stick with Help To Buy – also because you have to wait 12 months to get the bonus from the Lisa this year. But anyone else should at least investigate whether they’d be better off opening or transferring to a Lisa. It is Definitely Worth A Look.

Hargreaves Lansdown, Nutmeg and The Share Centre have stocks and shares Lisas available from today. Skipton Building Society says it will offer a cash Lisa in June.

More, very detailed reading, at Money Saving Expert here. Plus our very own SMM guide to getting on the property ladder here.

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Monday, 10 December 2018