Since being announced in the 2016 Budget, the Lifetime ISA (or LISA, as it has become ubiquitously known) has provoked a variety of reactions.
Some are calling it the perfect savings vehicle for the Millennial generation, others are labelling it just another government gimmick, and the rest don’t care either way.
Despite a fairly lukewarm launch from a limited number of providers, the LISA has attracted over 14,000 people in the first month, despite being only offered as a Stocks & Shares version. This has now changed, with the first Cash LISA being launched by Skipton building society on the 8th of June.
So, tell me again – what’s a LISA?
The LISA is essentially a savings and investment product for people aged 18-39, available now in both Cash and Stocks & Shares formats. It was introduced at the start of the 2017/18 tax year and allows people to save money for a first home or for use in their retirement. Terms and conditions of the LISA are:
- A maximum of £4,000 can be paid in per year (which will be taken out of your annual ISA allowance of £20,000)
- The Government will add a 25% bonus on any money saved
- It can only be used to buy a first home worth less than £450,000, or after the age of 60 without incurring penalties
- There is a 25% charge if you withdraw money from your LISA. This charge does not apply if you are:
Buying your first property
Aged 60 years or over
The LISA gives first time buyers the potential to boost their house deposit by 25%, giving them a helping hand onto the property ladder. It also offers a way to save for the future, with access to the entire amount tax free after the age of 60.
There has been a subdued reception to the LISA to say the least. Many providers chose not to offer one on launch day, stating a lack of demand and that the product itself was too complicated to roll out on time.
Until now, savers have had no LISA option, however there is now a Cash LISA alternative for those people who don’t wish to expose their savings to any capital risk.
Kris Brewster, the Head of Products at Skipton Building Society commented: “As a mutual, we’ve been helping first time buyers and savers for over 160 years. The Lifetime Cash ISA could make a real difference to a new generation of savers by assisting them in getting a foot on the property ladder. That is why we’re excited to offer a product that will encourage future homeowners to save towards this significant milestone. There isn’t a one size fits all approach to saving so it’s important people pause to think about their future and have a range of long-term options in mind – as well as reviewing these plans on a regular basis.”
Should I choose Cash or Stocks & Shares?
With both options of LISA now available, savers now face a decision. The interest rate for the Cash LISA offered by Skipton is 0.5%, which is a relatively average rate compared to other standard Cash ISAs.
Choosing between Cash and Stocks & Shares LISAs depends on a number of things, including your personal circumstances and your attitude to risk.
Generally speaking, the lower your attitude to risk, or the shorter the length of time you will hold the LISA (perhaps because you need the money to buy a house), the more likely a Cash LISA is to be appropriate. However, if the money will be held for a significant period, and you are willing to accept fluctuations in value, it may be appropriate to consider a Stocks & Shares LISA. This, over the longer term (for example retirement), we would expect to see outperform a Cash LISA, although of course there are no guarantees.
With Skipton being the only provider to offer a Cash LISA so far, it is hard to predict if others will follow. Many banks and building societies have publicly stated that they have no plans to offer a LISA of any kind, but as demand rises, only time will tell whether they reconsider their stance.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.