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Which Banks Offer A Lifetime ISA: Why You Should Have One

You may have read about them, but what exactly is a Lifetime ISA and what are the benefits compared to a normal ISA? Plus, take a look to see the difference between a cash LISA and a stocks and shares LISA and which banks are currently offering them.

which banks offer a lifetime isa?
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Lifetime ISA providers – quick guide

  • Moneybox
  • Paragon Bank
  • Beehive Money
  • Newcastle Building Society
  • Skipton Building Society
  • Nutmeg
  • AJ Bell
  • Hargreaves Lansdown
  • EQI
  • Onefamily
  • Forester

The Lifetime ISA

Interest rates have been incredibly low for years. The Government continually presses us to put money away for our retirement, but when you get so little back, there isn’t a great incentive.

This is where the Lifetime ISA (or LISA) steps in. First mentioned in the budget in April 2016 by George Osbourne, the Lifetime ISA was introduced to encourage people to either save for retirement or their first home.

Who is eligible?

The Lifetime ISA is available to UK residents aged between 18-40. So if your 40th birthday is next week, open quickly!

What are the benefits?

You are allowed to save up to £4000 each year until you reach 50. For every £1 you put in, the government will give you 25p. So, save your maximum of £4000 annually and you will be given £1000 on top. Plus, you can receive interest on the money you save.

Another benefit is that like an ISA, you will not have to pay any tax on your savings.

Can you pay into a LISA and an ISA?

If you already have an ISA, you’re probably aware that you can pay in a maximum of £20,000 each year. If you hold a LISA as well, this doesn’t change your allowance.

So, if you pay in £4,000 into a LISA in a year, you can only pay £16,000 into an ISA.

Stocks and shares LISA vs Cash LISA

To confuse matters slightly, there are two types of LISA – either stocks and shares or cash.

A Cash LISA works in the same way as a normal savings account. When you open your account, you’ll be told the interest rate you’ll receive. In recent years, this has been around 0.5%. Although this is far under the rate of inflation, it’s still not bad when you consider the extra 25% you receive.

But if you want something with a greater potential for returns, then a stocks and shares LISA may appeal. In some cases, you can receive far more for your money. But, you need to consider that these LISAs come with fees and the value of your investment can go down as well as up.

Which banks offer a Lifetime ISA?

Many of the major banks have been unwilling to commit to the LISA. In fact, at launch, there were only three companies offering the service. But slowly, more and more companies have climbed onboard.

Cash LISA providers

ProviderInterest rateMinimum investment
Moneybox0.85% (includes 0.60% bonus)£1
Paragon Bank0.70%£1
Beehive Money0.80%£1
Newcastle Building Society0.50%£1
Skipton Building Society0.50%£1
Rates correct May 2022

Stocks and shares LISA providers

ProviderFeesMinimum investment
Moneybox£1 per month. 0.45% platform fee + 0.12-0.30% fund fee£1
Nutmeg0.45%-0.75% platform fee + 0.14% to 0.28% fund fee£100
AJ Bell0.25% + dealing fees£500 or £25 per month
Hargreaves Lansdown0.45% + dealing fees£100 or £25 per month
EQI0.20%£1
Onefamily1.10% management fee£250 or £25 per month
Forester1.64%£500 or £50 per month

If you’re happy to choose the stocks and shares for yourself, then AJ Bell and Hargreaves Lansdown are the companies to opt for and this is why their fees are somewhat cheaper.

But if you don’t want to choose, then one of the other companies will be a more suitable option. They use something called a robo-adviser which will invest on your behalf. The idea is, that they will change investments depending on the market, which could give you a better return.

Before a robo-adviser gets started, it will give you a quick quiz to see how risk-averse you are and then provide a portfolio suited for you.

For example, Nutmeg offers a simple scale of 1-10 when you open a LISA. Choosing a 1 when you invest means you want to stay on the safe side. In this case, more of your money will be invested in opportunities such as bonds. Although they offer lower returns, they’re also generally safe investments. Opting for a 10 gives you the opposite, and Nutmeg will place your money in various stocks. This comes with the potential of large gains but an increased likelihood of losing money.

A decent provider will also give you a forecast of how much you could potentially earn. Below is an example from the Nutmeg website. It shows how much you could earn by making set contributions based on expected returns.

best lifetime isa

Any downsides to a LISA?

Of course, there are always going to be some T&C’s attached.

The money is not meant to be withdrawn until you reach 60 or when you want to buy your first home. If you do remove your money early, you will have to pay a 25% fee. Not bad you may think, as the bonus was 25%, so they cancel each other out. Well, not quite. Imagine you deposit £100 and you receive a £25 bonus, giving you £125 in total.

But withdraw that £125 early and you will lose £31.25 (25% of £125). This will leave you with £93.75. So ending your Lifetime ISA early will cost you.

The government has given one concession. If you are diagnosed with a terminal illness with less than 12 months to live, you can withdraw your money penalty-free.

Should a LISA replace a pension?

Generally, no. Any money placed into your pension will not be taxed first, automatically saving you 20+%. On top of this, your employer will also contribute to your pension. These factors should outweigh the 25% bonus of the LISA.

Is it worthwhile?

If you’re saving for your first house, this is a great boost for your deposit.

But, as the main source of retirement income, no. As a supplemental saving account, yes. A 25% bonus in today’s market is a great return. Plus, you should earn extra in interest. And although it shouldn’t replace a pension, remember that this money will be available to you when you reach 60.

As an extra savings account, the Lifetime ISA is a no-brainer. I use this to save alongside my pension.

Just make sure you open one before you reach 40!

So which is the best Lifetime ISA?

This is really up to you. With a cash LISA, it’s simply looking for the best interest rate. At the moment Moneybox has the best rate on offer, although this may drop after the first year. But if you find that happens, you can always transfer to another provider which is simple to do.

Stocks and shares can be harder to choose because you will be charged different fees. Mine is held with Nutmeg, which I chose for its ease of use and selection of funds. You can see my full Nutmeg Lifetime ISA review, to see how well it has performed for me.

Visit the government website to read more about the Lifetime ISA 

FAQs

How much does a stocks and shares LISA pay?

This really depends on the fund you invest in. However, history shows that on average, the stock market returns 10% each year.

How is a Lifetime ISA bonus paid?

HMRC calculate bonus payments for your Lifetime ISA from the 6th of the month to the 5th of the following month. When your bonus is paid depends on your provider, but it is usually made at the end of the following month.

How many Lifetime ISAs can I have?

You can open as many as you like (although only one each year), but you can only contribute to one each year.

Does a LISA affect benefits?

LISA savings will affect your eligibility for benefits.

Can you transfer a Lifetime ISA?

Yes, you can and there’s no withdrawal charge.

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