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Lifetime ISAs

How they work, who they're for & all best buys

Lifetime ISAs
Martin Lewis
Martin Lewis and Helen Saxon
Updated 12 March 2019

The launch of the LISA (Lifetime ISA) in 2017 was a damp squib – with few providers offering them. Even now, there are only a few more. But don't ignore it, as £1,000 of annual free cash is nowt to be sneezed at.

This guide by MoneySavingExpert.com founder Martin Lewis and MSE's former chief analyst Helen Saxon takes you through the LISA, and – crucially – all the latest best buys. If there's anything you think we've missed please let us know.

Lifetime ISA need-to-knows & best buys...

Lifetime ISA need-to-knows

  1. What is a Lifetime ISA?

    The Lifetime ISA (LISA) is a tax-free wrapper that lets you put up to £4,000 in it every year. It can be as cash savings – so you get interest – or stocks and shares investing – so you get share growth (or loss). It's designed for two specific purposes. The first is for first-time buyers to use towards a deposit for a residential property (see the LISA for first-time buyers). The second is for later life (OK, let's call it retirement) savings once you hit age 60 (see the LISA for retirement).

    And if you decide to use the LISA to buy your first home, you can keep it open and save for retirement. The idea behind mixing the two is a bit of behavioural economics. Many under-40s are turned on by saving for their first home in a way they aren't for saving for retirement, so the idea of bringing them together is that hopefully people will build up a savings habit for their first home, then, with a zest for saving, carry on afterwards.

    However, the strategy for saving for a home in the short term and retirement in the long term are very different.

    Quick questions

    • Can the LISA rules change?

      Yes they can. Parliament has the power to change anything. However, it's unlikely that if you've saved in it and had the bonus that it will be taken off you. What is more plausible is that a future government decides it will stop paying bonuses, or will change the withdrawal penalties or amounts that you can pay in, or it could add extra things you can get a bonus for.  

      So you should be pretty confident that, if you're putting money in to get the bonus for use on a home or retirement, you'll actually get it. And if the bonus is stopped, just stop putting money in.

    • How does the LISA's tax-free status work?

      The Lifetime ISA is, well, an ISA – an individual savings account – which is a place to save where the taxman can't get his hands on the interest you make.

      You can put up to £20,000 in ISAs in this tax year – and the money you put in your LISA will count towards that. So if you put £4,000 in the LISA this tax year – on top of which you'll get a 25% state bonus – you'll only be able to put £16,000 in other ISAs. The bonus you get doesn't count towards the year's ISA allowance.

      How the tax works depends on whether you're saving or investing...

      Cash LISA savings

      Interest is paid tax-free on the amount you contribute and any state bonus that's already in the account when the interest's paid. You get to keep all of this interest, and the next year you'll earn interest on it too – this is known as compound interest.

      Also, the interest earned doesn't count towards your personal savings allowance, so there's no impact on your ability to earn £1,000 a year of interest tax-free as a basic-rate taxpayer from other savings (£500 higher rate).

      Investment LISAs

      This is more complex as investment gains come in three main types: dividends, capital gains and bond interest. You might pay tax on these outside a LISA; if you have them held within a stocks & shares LISA, however, you don't pay tax on any of them.

  2. You get a 25% bonus each tax year on everything you put in

    You can save up to £4,000 a year in a LISA as a lump sum or by putting in cash when you can. The state will then add a 25% bonus on top. So if you save £1,000, you'll have £1,250 and if you save the full £4,000, you'll have £5,000. And that's before interest or growth.

    • The bonus is paid every year until you hit age 50.
    • The bonus is paid monthly (if you've contributed that month) and takes between four and nine weeks to arrive.
    • Once in your account the bonus counts as money, so you'll get interest on it too (or investment growth/loss).
    • You only get the bonus on contributions, not interest or stocks and shares growth/loss.
    • The max bonus is £33,000 if you open it at 18, and max it out until you hit 50 (unless you're born on 6 April, when the max is £32,000).
    Quick questions

    • Can I save more than £4,000 a year?

      The rules say you can only save up to £4,000 a year in a LISA. But you could still open a cash ISA, stocks & shares ISA and/or innovative finance ISA for the remainder of your allowance (or even split savings between all three).

      In 2019/20 the ISA allowance is £20,000, meaning you could save whatever is left after your LISA contributions up to that limit. For example, if you save the maximum £4,000 in the LISA, you've still got £16,000 worth of allowance to use up in one or more of the other types of ISA.

    • I'm not from the UK, or I'm currently living overseas. Can I open a LISA?

      You need to be living in the UK when you open the account and pay in to it (unless you're a crown employee on an overseas posting, or the spouse/civil partner of one). It doesn't matter if you're a UK citizen or not.

      If you then move abroad, you'll need to stop paying into the ISA – unless you're a crown employee.

      If you permanently emigrate away from the UK, the normal withdrawal rules apply. You'll need to use the funds for a UK residential property (not buy to let, so this will be difficult), wait until you're 60 and withdraw it then, or pay a 25% penalty to access the cash early.

  3. You must be aged 18 or over but under 40 when you open a Lifetime ISA

    Anyone aged 18 to 39 can open a LISA. For (grand)parents wanting to help their (grand)kids buy a home, giving them cash to put in a LISA is a great way to do it.

    If you're pushing 40, make sure you open one before you hit the cut-off age. Once you're over 40, you can continue to save into the LISA until the day before your 50th birthday. 

    And, if you want to transfer it to a new provider, for example to get a better interest rate, this is allowed – and then you can add to it. You just can't open another for new money only.

    As always when there's an age limit, some will miss out. For the many people who've asked us "Isn't this age discrimination?" the answer is yes, it is. However, it is not illegal age discrimination; no more than setting a state pension age is. Bear in mind that the Help to Buy ISA also gives a 25% bonus (though on a smaller amount) and has no upper age limit. Also see our Top Savings, Top Cash ISAs and Pension Savings guides.

    Quick questions

    • Can I open a LISA for my son or daughter?

      Sort of. ISAs are individual products, so your children will need to open their own LISA once they're 18 or over. Yet you can give them money to put in it. It's worth noting if they're younger, a Help to Buy ISA can be opened from age 16, so you could start there.

      Many worry about the tax implications of giving money. But gifts aren't taxable; you can give money to anyone you choose (as long as it is a genuine gift and not in lieu of some service). The only caveat is if you die within seven years there can be inheritance tax on it.

    • Can I keep saving in a LISA once I'm over 50?

      No. The regulations say you can't contribute into a LISA once you hit 50. So between ages 50 and 60 you'll still be able to earn interest on the amounts you've saved before you were 50 (similarly, if it's invested, you'll benefit from any investment growth) but you can't put any more in.

      You'll also be able to transfer the money between different LISA providers to up the rate, whether it's saved or invested. However, unless you use the funds to buy your first home, you won't be able to access the money in your LISA for retirement income until you're 60 (unless you forfeit all the bonus payments accrued on that cash and pay a penalty on top).

  4. Withdraw the money not for a first home or retirement and you pay a penalty (unless you die)

    You can take some or all of your cash out of a LISA before age 60 even if you're not buying a property. However, it'll usually cost you – so it's best to try to only use the LISA if you're sure the cash is for one of the two defined purposes – first-home purchase or retirement.

    • Withdrawals for other reasons have a 25% penalty, equivalent to a loss of just over 6%. At first glance the fact you've had a 25% bonus added and then a 25% penalty would leave you back where you started. Yet unfortunately the maths doesn't work like that...

      ... Imagine you saved £1,000 by April 2019 and so got a £250 bonus (due in May). So you'll have £1,250 total (ignoring interest, for ease). If you withdrew it in June, and closed the account, the 25% penalty would be £312.50. So you'd get £937.50 back.

      The way the maths works out is withdrawing for reasons other than LISA purposes loses you 6.25% of what you contributed.
       

    • You don't pay the withdrawal charge if you die or are terminally ill. There is provision in the LISA rules so that if you have less than 12 months to live, you retain the bonus with no penalties. If you die, any LISA money including interest and bonuses is passed on to your beneficiaries without penalty, though it'll no longer be in an ISA wrapper, and will form part of the estate for inheritance tax purposes.

    Quick questions

    • Can I make partial withdrawals?

      Yes, you just pay a penalty of 25% of the amount withdrawn. An example may help...

      Imagine you saved £4,000 in the 2019/20 tax year, and got a £1,000 bonus on it in May 2019. Then, in December 2019, you want £1,000 back from the account. 

      To get £1,000 in your hand, tell your ISA provider this is what you want. It'll pay the cash out, but it will also pay the withdrawal penalty to HMRC. In our example, you end up with £1,000, but your balance is reduced by £1,333.33, leaving £3,666.67 (plus any interest) in the account.

    • What happens to my ISA allowance when I die?

      When you die, if you're married or in a civil partnership your partner gets a one-off increase in their (normal, not Lifetime) ISA allowance equivalent to what you had in all ISAs combined (including LISAs). They get this whether or not you leave the ISA money to them.

      If you're not married or in a civil partnership, the allowance doesn't pass to anyone.

  5. Once it's opened, you're not locked in – you're free to transfer it to another provider

    Once you've got the LISA open you don't have to stick with the provider you pick at the start.

    As with normal ISAs, interest rates will go up and down – you'll need to keep an eye on it, and be ready to transfer between different LISA providers to up the rate if you see a better deal. 

    The same is true with stocks & shares LISAs: you may decide to change your investment priorities, in which case you'll be allowed to move it.

    You can hold more than one LISA at any one time, provided that you only pay in to one in each tax year (you can transfer the current year's money around, provided it's ALL transferred each time).

  6. You can open and contribute to a cash ISA and a Lifetime ISA

    The overall ISA limit is £20,000 in the 2019/20 tax year. You are allowed to split this between a LISA (up to the maximum £4,000) and put the remainder in a cash ISA, stocks & shares ISA and/or an innovative finance ISA (for peer-to-peer investing) in the same tax year. 

    You're also allowed to have a Help to Buy ISA and a LISA, though you can't get the first-time buyers' bonus on both (see Help to Buy ISA vs LISA info below). But you could get the Help to Buy ISA bonus for a home and then use the LISA and its bonuses for retirement.

    Quick question

    • Can I transfer cash from other ISAs into my Lifetime ISA?

      Yes, if the provider allows it. Even then though, you can only transfer £4,000 from other ISAs into the LISA in any one tax year (this includes Help to Buy ISAs).

      As with any ISA transfer, anything you've moved from previous years' ISAs does not affect your overall current tax year's contribution.

      For instance, if you transfer £4,000 into a LISA from a previous year's ISA in the 2019/20 tax year, you'd still be able to deposit £20,000 into a cash ISA, stocks & shares ISA or an innovative finance ISA (or a split between two or three of these) within the same tax year, though you'd have used up your LISA allowance for that year.

The Lifetime ISA need-to-knows for first-time buyers

  1. A first-time buyer is someone who's NEVER owned a property anywhere in the world before

    If you've owned before – whether inside or outside the UK – you don't count. This includes owning a property (or a share of one) that you inherited, even if it was sold straightaway and you didn't live there. If you owned a company or had a trust that owned residential property that you are (or were) able to live in, you're also not considered a first-time buyer.

    Quick 'Do I count?' questions

    • I'm a beneficiary in a will through which I'll receive a property in future. Am I a first-time buyer?

      Yes. At the moment, you are a first-time buyer as the person leaving the property to you is still alive.

      However, if the worst were to happen, and they died before you had used the LISA savings for your first property purchase, then you wouldn't be able to put the LISA savings towards the property purchase without paying the 25% withdrawal charge, as you wouldn't be a first-time buyer at that point – you'd have owned a property.

      Effectively, you'd need to keep the cash in the LISA until you were 60 and could withdraw penalty-free, or you'd need to be prepared that you may get less back than you put in.

    • I invest in property through peer-to-peer schemes. Am I a first-time buyer?

      You probably still count as a first-time buyer, as it's likely that the schemes you're investing in don't allow you the right to live in or occupy the properties you're investing in.

  2. You must be buying a residential UK property to live in that costs £450,000 or less

    To get the bonus you'll just need to buy a property that costs £450,000 or less with any residential mortgage (not buy to let). That includes Right to Buy, shared ownership, self-builds, and Help to Buy loans. The LISA is intended to help you buy your first home, so you're not supposed to rent it out. For exact rules, see Martin's 'Can I rent my property?' blog.

    If you put the money in a LISA and don't qualify to use it for a property (eg, the property you want is more than £450,000), you'll have to pay the penalty to withdraw it or you can keep it for use once you hit 60. So think seriously about whether this could happen to you first. 

    You can get the money in time for exchange on your property, meaning you can use it towards the deposit requested by the person you are buying off (the exchange deposit), as well as the deposit the mortgage company will want on the property at completion. See the difference between these.

    Quick questions

    • How do I actually buy a home with a LISA – who does it?

      When buying, ask your LISA provider to transfer the cash directly to your conveyancer/solicitor, not to you. If you do withdraw it to an account in your name, you'll pay the 25% withdrawal charge. All funds, including the bonus, will be available to use at exchange, provided the bonus has been paid in time.

    • How quickly do I need to buy after withdrawal?

      The purchase needs to complete within 90 days of withdrawing your savings from the LISA. See how buying a home works.

      If your purchase is going to take longer, delay taking the money out of your LISA, or ask your solicitor/conveyancer to write to HM Revenue & Customs to get an extension.

    • What happens if my purchase completes before I get the bonus?

      As we say above, the monthly bonus can take between four and nine weeks to arrive in your account. If your property purchase completes before you get the bonus then you'll have to pay the 25% withdrawal charge to access the money.

    • What happens if my purchase falls through?

      Don't worry, you won't lose out. In this case, the funds go back to the LISA account they came from. This won't affect your annual contribution; you'll still be able to contribute up to £4,000 that tax year (unless you already have).

    • Is there a minimum mortgage amount or term to use the LISA?

      No, the only criteria is that you buy with a residential mortgage (so not buy to let). However, if you could be a cash buyer, and are just getting a mortgage to be able to use the LISA, do the maths to make sure it's worth it.

      Most lenders have a minimum lending amount, often £20,000 or £25,000, so you'd need to borrow that much. You'd also need to pay for a lender's valuation and legal work when purchasing the property, and the mortgage you get may have early repayment penalties if you plan to pay off the entirety of the mortgage in the first months of it.

      If you plan to do this, always ensure that the amount you get from the state bonus is more than the mortgage will add to your purchasing costs over being a cash buyer.

    • I'm a cash buyer. Can I use the LISA?

      If you're lucky enough to be buying your first property with cash, you'll pay the withdrawal charge to access your LISA savings (unless you're over 60) as you need to be buying with a mortgage to use the LISA and bonus.

    • Can I use the LISA for a self-build property?

      Yes. You'll be able to put LISA savings, including the bonus, towards the purchase of the land for a self-build property, provided you still meet the other criteria (ie, the land's in the UK, you're buying it with a mortgage, it costs £450,000 or less and you complete within 90 days of withdrawal; further, that the home you intend to build is your first home and you intend to live in it).

      The Treasury advises that if you're in any doubt about whether a LISA can be used, your solicitor should be able to help.

    • Can I use the LISA if I'm buying a property at auction?

      Yes, provided you still meet the other criteria. However, you won't be able to use it towards the deposit the auction house requires upfront.

    • If I have a shared ownership property, can I use the LISA to 'staircase up'?

      If it's just you wanting to 'staircase up' the amount you own, you can't use a LISA as you already own a share of a property.

      Yet if you have a partner who's a first-time buyer, and meets all the other requirements above, they will be able to use the LISA and bonus to help you staircase up. Note that your partner will need to be named on the title deeds of the property to show they have used their LISA and bonus towards the purchase.

  3. Each person has their own LISA, so couples can have one each

    If you're planning to buy a home together, it's important to understand that there's no such thing as a joint LISA: you and your partner/spouse need to open separate ones. To make it plain:

    • If you're a first-time buyer making a purchase with someone who's owned before – you can still open one and use it towards a home purchase together.

    • If you're both first-time buyers buying a property together costing £450,000 or less – you can both open one and save in it, effectively doubling the bonus. Note: even if you're both using the LISA, the £450,000 limit is strict. It doesn't double because you're both using the LISA cash. 

  4. You need to have the LISA open for a year or more to be able to use it for a home

    This is crucial. You need to have had the LISA open for at least 12 months to be able to use it (and the bonus) towards your first home. If you haven't started a LISA and need to buy within a year, use a Help to Buy ISA instead.

    It's worth bearing in mind that if you open multiple LISAs, each one needs to have been open for more than 12 months to qualify. However, there's a way around this. Simply transfer all the money into the oldest one before you buy – then it all counts.

    Or you can keep the clock ticking by rolling all your LISAs into one, year after year. So if you opened a LISA in June 2018, you could transfer it to another provider in June 2019 and even though the original account would no longer exist, you'd still be able to use your LISA for a home, as the transfer kept the 12-month count running.

  5. Wannabe first-time buyer? Even if you've no savings, open a LISA ASAP with the minimum, to start the clock

    As you must have had a LISA open for a year to be able to use it for a first home, anyone with even an inkling of being a first-time buyer should open a LISA with the bare minimum (can be just £1) just to get the clock ticking – in case you want to add to it later.

    If you then don't end up buying a property, or you buy one that's over £450,000 or overseas, for example, then you can just withdraw the £1 and you'll only have lost out by about 6p.

  6. Lifetime ISAs tend to beat Help to Buy ISAs but offer less flexibility

    The Help to Buy ISA was launched in December 2015, and like the LISA, it has a 25% bonus that's added to what you save, if you use it towards a first home.

    • You can have a Help to Buy ISA and a LISA.

    • However, you can only use the bonus from one of them towards buying a home.

    • Use the LISA for the 25% bonus to buy a home and you won't get the bonus with the Help to Buy ISA, but you can still keep and use the money plus the interest.

    • Use the Help to Buy ISA for the 25% bonus and you'd have to pay a penalty to use your LISA savings for a property. Though you'd still be able to use it (and any bonuses) for retirement savings.

    While the LISA allows you to save more, the Help to Buy ISA wins for some as our table shows:

    Lifetime ISAs vs Help to Buy ISAs – which wins?

    TABLE_CELL_STYLE LIFETIME ISA (FOR HOME PURCHASE) HELP TO BUY ISA
    Max contribution? £4,000/yr £2,400/yr (£3,400 in year one)
    Lump sums? Yes No, need to save monthly
    Max bonus? £33,000 (assumes max contribution every year from 18-49) £3,000 (assumes max contribution over four years and eight months)
    When's the bonus paid? Monthly On completion when you buy a home
    Investment option too? Yes, via stocks & shares LISAs No. Cash savings only
    Max property price? £450,000 £250,000 (£450,000 in London)
    How quickly can you use it? After the LISA's been open 12mths Once you've £1,600+ saved (can be done in min 3mths)
    Who can open it? Anyone aged 18 to 39 Any first-time buyer aged 16+
    What can it be used for? The home deposit and
    mortgage deposit    		 Just the mortgage deposit
    Can I withdraw money if not buying a home? Yes, at age 60+; if earlier you don't get the bonus and will pay a penalty Yes, at any time, you just don't get the bonus

    Hopefully the table gets you there. If not, in summary...

    - If you'll DEFINITELY buy a home, for less than the LISA maximum of £450,000, are aged 18 to 39, and you won't do it within a year, go for a Lifetime ISA as you will get a bigger bonus.

    - If you are older, NEED TO BUY QUICKLY or you're not 100% sure you'll buy at all then it's safer to stick with (or get) a Help to Buy ISA.

The three Lifetime ISA need-to-knows for retirement savers

  1. You can only access your LISA funds at age 60 – so you need to be in for the long haul

    Even for the oldest people who can get a LISA, 60 is two decades away. The rules could be changed within that time, for good or bad – like any form of retirement savings. Here's how they stand now...

    • You can access the cash on or after your 60th birthday. Then use it for whatever you like.

    • You don't have to take it all at once. You can make partial withdrawals.

    • If you leave it in the LISA it will still continue to get interest or investment growth/loss. The LISA doesn't simply stop at age 60; it'll still be an active product.

    • You don't pay tax on the cash. All money taken out of a LISA for retirement is tax-free.

    • LISA savings will affect your eligibility for benefits. Unlike a pension, which isn't counted as savings for means-tested benefits, the LISA will affect your eligibility for them. So you could have to pay to withdraw your LISA retirement savings and live off those until your savings are down below the means-testing threshold. Similarly, they count as assets in bankruptcy or divorce cases.

  2. WARNING! Unless you're a self-employed basic-rate taxpayer, using a pension to save for retirement is likely to be far better than a LISA

    The LISA is designed as an option for saving for retirement, just like a pension. Some will see it as an alternative; others will see it as a complementary measure, as you can have both. But the two are very different beasts.

    • With a pension you save from gross (pre-tax) income. So, as a basic-rate taxpayer, to save £100 only costs you £80 from your pay packet, as that's all you would've received.
       

    • With a LISA you save from net (after-tax) income. So, to put £80 in costs you £80. However, if 25% is added to it, that means you've got £100.

    So on the surface the amount you put in and get are pretty similar for basic-rate taxpayers. But it does get more complex than that...

    Where a pension usually beats a LISA

    • If you're employed, auto-enrolment means your employer has to match some of your contributions in a pension; they don't in a LISA. This is a big advantage of pensions, and one that easily trumps a LISA.

    • You may also get national insurance and salary sacrifice gains from a pension through an employer.

    • Higher-rate taxpayers get relief at 40% in a pension. So to contribute £100 only costs them £60 – easily beating a LISA.

    • Saving in a pension doesn't impact your benefit entitlement; saving in a LISA does. If you became unemployed, you may need to withdraw your LISA savings (and pay the 25% withdrawal charge) before you'd be eligible to claim some means-tested benefits – leaving you nothing for retirement.

    • Savings in a LISA are counted as assets in bankruptcy cases, so you could be forced to cash in early. Pensions are usually protected.

    • You can currently take money from pensions from age 55 (this will rise slowly to 58); you need to be 60 to use LISA savings without penalty.

    Where a LISA usually beats a pension

    • When you take your pension (see how to take your pension) you can only take 25% of it as a tax-free lump sum – the rest you pay income tax on (at your marginal rate). However, withdrawals from LISAs are totally tax-free.

    • Apart from with critical illness and death you can't ever take cash out of a pension early, but if you're prepared to take a 6% hit, you can withdraw money from a LISA.

    • Some pensions for workers employed by the state, eg for NHS workers, can only be claimed in full at state pension age (though a reduced amount can be claimed earlier). If this applies to you, a LISA can beat a pension in terms of early access.

    As a general rule though, a pension will likely beat a LISA as a first place to save for retirement funds for anyone who is employed (due to the employer's contribution) and anyone who is a higher or top-rate taxpayer. As this is complex, here's a table which may make it easier.

    Lifetime ISAs vs pensions – which wins?

    TABLE_CELL_STYLE LIFETIME ISA PENSION – BASIC-RATE TAXPAYER PENSION – HIGHER-RATE TAXPAYER
    Employer contribution None Yes – 2-3%+ of salary (see auto-enrolment) Yes – 2-3%+ of salary (see auto-enrolment)
    State contribution 25% 25% (tax relief) 66% (tax relief)
    Max amount you can you save/yr? £4,000 £40,000 (max amount with tax relief) (1) £40,000 (max amount with tax relief) (1)
    When is bonus/tax relief paid? Monthly Immediately (2) 25% paid immediately, rest must be claimed (2)
    Who can open one? Anyone aged 18-39 Anyone aged 16+; parents can open one for you from birth Anyone aged 16+; parents can open one for you from birth
    When can you access it? Age 60 (accessible before for a penalty) Age 55 Age 55
    Do I pay in from pre or post-tax income? Post-tax income Pre-tax income Pre-tax income
    What tax will I pay on withdrawal? Tax-free 25% tax-free, rest taxed at your income tax rate 25% tax-free, rest taxed at your income tax rate
    Liable for inheritance tax? Yes No No
    Affects pre-pension-age benefits entitlement? Yes No No
    Can be taken to pay creditors in bankruptcy? Yes No No

    (1) You can carry unused allowances over from previous years, meaning that technically you could contribute up to £160,000 in the 2019/20 tax year. However, you'd need to earn at least this to get this much tax relief. For a fuller explanation of the annual allowance, see pension need-to-knows. (2) Unless you contribute by salary sacrifice in which case the saving's made by paying in from pre-tax income.

    A little aside...

    Not to do with your choice, but it's worth taking a look at the cleverness behind this from the Treasury. If people use a LISA rather than a pension, the Treasury gets tax revenue now, as savings come from taxed income. If people put it in a pension, the Treasury has to wait years to get tax. So this could be the current Chancellor grabbing cash out of future Chancellors' pockets.

  3. The longer you're likely to keep the LISA, the more you should consider share-type investments

    The LISA gives you two savings options. The main one for first-time buyers will be cash LISAs which is where you put the money into the equivalent of a savings account, so your capital (the sum you put in) is safe and you get a defined amount of interest on top. 

    Yet if you're saving for retirement it's also worth considering investment LISAs – where the money is invested in stocks and shares (or funds) and performance depends on how well your investments do. Here you're taking a risk that you may lose some cash in the hope that it will grow faster.

    Which you opt for will depend on your attitude to risk and reward, though as a rule of thumb, you should be looking to invest for at least five years if that's your choice. This allows enough time to ride out any bumps in the market that might see you make a loss.

    If you're saving for retirement and you've more than five or 10 years to go, the general wisdom is it's worth taking some risk at that point and looking at the higher rewards that investing in the market can bring – though it comes with the risk of losing money if stock markets (or companies you hold shares in) tank.

    But, if you're a bit more cautious, you could open a cash LISA one year, and a stocks & shares LISA the next year (remember, you can hold more than one LISA at a time, you just can't usually open and pay in to more than one in the same tax year).

    Quick question

    • Are my savings safe in a Lifetime ISA?

      With cash LISAs, the only risk is the slight one of the bank or building society going bust, though you get up to £85,000 protection from the Financial Services Compensation Scheme (FSCS).

      The only thing to watch is that this is by banking institution, not per account. So if you have other savings in the same place as your LISA savings, it could take you over the limit. If so, see our Savings Safety guide for more info.

      If you've a stocks & shares LISA, you have investment risk – the value of the investments you hold could go up or down. A totally different FSCS protection applies here...

      Investor protection is about providers going bust, NOT you losing money

      The FSCS investment protection applies if you lose money due to the product provider of the investment going bust – eg, if you've a stocks & shares LISA with a bank, and the bank goes bust – not if the underlying investment goes bust.

      In other words, if you've shares in a company and it goes kaput, or you've bought a fund and it performs poorly, you've no protection as that's the nature of investing.

      Yet in many cases if you're buying shares or funds through a company – eg, some stockbrokers just sell you shares – the fact the stockbroker went bust wouldn't actually matter. You'd still own the shares, so there'd be no compensation.

      In general, if you are due compensation, you'd get 100% of the first £85,000 back.

Best buys: The top Lifetime ISAs

Don't get too excited – there aren't many of these, especially if you want to save in cash rather than stocks and shares. We've the best of both here...

Top cash Lifetime ISAs

There are now three providers offering a cash LISA...

Newcastle Building Society – 1.1% AER variable

Top cash LISA rate

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The Newcastle Lifetime ISA offers the top cash LISA rate of 1.1%. This may seem low, but you'll get the 25% state bonus on top, so don't let the rate put you off. You need to open the account online, but can manage it online, by phone or by post.

Interest rate: 1.1% AER variable  
Interest paid: Annually
Min pay-in: £1 | Max pay-in: £4,000/yr
Access: Online/phone/post
Allows transfers? LISA transfers only
FSCS protection: Full £85,000 UK savings safety guarantee. See Savings Safety.

Apply

Skipton Building Society – 1% AER Variable

Decent cash LISA

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The Skipton Lifetime ISA is another option if you want a cash LISA, though it pays slightly less interest than Newcastle above at 1%. It does accept transfers in, so it's good if you want that option. You'll need to be happy to manage the account online.

Interest rate: 1% AER variable  
Interest paid: Annually
Min pay-in: £1 | Max pay-in: £4,000/yr
Access:  Online only
Allows transfers? Yes, though non-LISA transfers in will eat up your LISA allowance
FSCS protection: Full £85,000 UK savings safety guarantee. See Savings Safety.

APPLY

Nottingham BS - 1% AER variable   

Another decent cash LISA

Apply

Nottingham Building Society's cash LISA pays 1% AER variable interest - the same rate as the Skipton LISA above. You can open it online or in branch with £10.

Interest rate: 1% AER variable  
Interest paid: Annually
Min pay-in: £10 | Max pay-in: £4,000/yr
Access:  Online or in branch
Allows transfers? No
FSCS protection: Full £85,000 UK savings safety guarantee. See Savings Safety.

APPLY

Top stocks & shares Lifetime ISAs

Ultimately with stocks & shares LISAs, what counts is what you choose to invest in, and there are a lot of different investment choices. We don't cover which investments are best for you, so here are the main details of some of the platforms currently offering stocks & shares LISAs.

Stocks & shares LISAs are much riskier than cash LISAs by their very nature. So there are two things to remember before going down this route:

1. IMPORTANT! If you invest, your capital is at risk. As with any investment, the value of your funds can go down as well as up, and while it's unlikely, you could lose all your money.

2. Always keep an eye on fees. Because even small fees year after year can eat into your investment.

Lifetime ISAs with wide range of investment choices

These two providers allow you to choose from tens of thousands of investment options, from shares to funds, ETFs and more. While you can opt for simple, fully managed funds where you put your money in and investment decisions are made for you, these platforms may be more suitable for experienced investors.

If you're not sure, or overwhelmed by choice, then the three 'simpler' LISAs below may be more suitable, as they come with a limited range of funds you can invest in, and tend to be fully managed as standard.

AJ Bell Youinvest

Lots of choice, so best for more experienced investors. Slightly lower base fees than HL below 

Apply

AJ Bell Youinvest is a major investment provider, and though its Lifetime ISA is quite new, it's been a top pick for its stocks & shares ISA for a while. AJ Bell's LISA gives a solution to experienced investors – who can pick from shares, ETFs, funds & more.

If you're less experienced, you can go for one of its passive funds (which have different risk levels, from cautious to adventurous), where you buy into a fund where AJ Bell manage the composition on your behalf. Or, you could try exchange-traded funds (ETFs) which track a chosen index, eg the FTSE-100, where the fund manager aims to mirror the performance of that index.

If you're looking for no risk, you can keep your money as cash, though you'll only get interest if you've above £50,000, and then only 0.05%. If this is what you're looking for, the cash LISA above is much more suitable.

One thing to watch out for is that this LISA could have high transfer fees. It charges a £25 fee per holding to transfer to a new provider – fine if you're in one fund, but potentially expensive if you've several different funds or share holdings – though if you're happy to cash in before you transfer, there's no fee.

What can I invest in? Thousands of different investment choices, incl shares, funds, investment trusts, bonds exchange-traded funds.
Min investment: £500 lump sum or £25/mth | Max investment: £4,000/yr
Annual fees: 0.25% as a base, though it depends what you invest in. See all charges.
Allows transfers? Yes, though non-LISA transfers in will eat up your LISA allowance
Exit/transfer fees: None if transferred out as cash, otherwise £25 per holding to transfer

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Hargreaves Lansdown*

Similarly huge choice of investments as AJ Bell, though slightly higher base fees 

Apply*

Hargreaves Lansdown* is a major investment provider, and popular with investors for its large range of choices – more than 13,500 different options. With Hargreaves, you can be as involved as you want, from choosing your own shares and funds and making up a portfolio, to opting for single funds where the fund manager chooses the investments.

If you're looking for low risk, Hargreaves Lansdown says you can leave your money in a 'cash park' (basically holding it as cash), though you'll only get 0.05% interest and that's only if you've £5,000 or more (plus, by definition, won't get growth on your investment). Again, if you don't want risk, the cash LISA above is likely to be more suitable.

Again, you could pay relatively high fees to transfer out as there's a £25 per holding fee to transfer out. Fine if you've one or two different holdings, but could get expensive if you've significantly diversified – though if you're happy to cash in before you transfer, there's just one £25 fee (plus the exit fee).

What can I invest in? 13,500 investment choices, incl shares, funds, investment trusts, exchange-traded funds.
Min investment: £100 lump sum or £25/mth | Max investment: £4,000/yr
Annual fees: 0.45% as a base, though it depends what you invest in. See all charges.
Allows transfers? From non-LISAs, though transfers in will eat up your LISA allowance
Exit/transfer fees: £25 to transfer out as cash or £25 per holding to transfer

APPLY*

Simpler Lifetime ISAs with a limited choice of funds

The two Lifetime ISAs above tend to be more for those who are confident in choosing their own funds, and happy to take a more hands-on approach to managing their stocks & shares LISA. The LISAs below are likely to be more suitable if you want a more simple investment choice, as they tend to have limited numbers of funds, which are designed for different risk profiles.

Nutmeg*

No platform fee for a year, plus Nutmeg can recommend a portfolio based on your attitude to risk  

Apply*

If you're a new Nutmeg* customer and you apply via our link, you'll pay no platform fees for the first year. Nutmeg's a robo-investor, meaning you don't get to choose the exact investments your money goes into. Instead, you choose portfolios based on your attitude to risk – Nutmeg will ask you questions when you open your account and recommend portfolio(s) to suit the level of risk you're willing to take.

This means you can't pick and choose what funds you want in your portfolio, though it is an easy route. If you're looking for low risk, Nutmeg says 'portfolio one' carries its lowest risk, being made up largely of bonds, rather than equities which are a lot riskier.

What can I invest in? Choice of 10 fully managed portfolios, or five 'fixed-allocation' portfolios
Min investment: £100 lump sum | Max investment: £4,000/yr
Annual fees (after year 1): Fully managed or socially responsible portfolio: £0-£100k at 0.75%, fixed portfolio: £0-£100k at 0.45%
Investment fund costs (average): 0.18%-0.33% depending on portfolio 
Effect of market spread cost (average): 0.08%
Allows transfers? No
Exit/transfer fee: None, though charges £20 per holding for 'in specie' transfers (where you transfer a fund/holding directly to a new provider without cashing it in first – these are rare)

APPLY*

Moneybox

Invest into one of three fund choices, plus Moneybox can 'round-up' daily spending to invest 

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Moneybox is an app that lets you invest from as little as £1. You can make weekly or one-off deposits into one of three investment options – cautious, balanced or adventurous. There's also a feature called round-ups, where you connect your debit or credit card to it and it automatically rounds up your purchases to the nearest pound, investing the difference (eg, buy a £2.20 coffee and it takes 80p to invest). Any savings you make are taken once a week via direct debit and invested a few days later.

If you're looking for low risk, as its name suggests, the 'cautious' portfolio carries the lowest risk, being made up largely of cash, rather than shares which are a lot riskier.

What can I invest in? Choice of three investment options – cautious, balanced or adventurous
Min investment: £1 | Max investment: £4,000/yr
Annual fees: £1/mth (free for the first 3mths) + 0.45%/yr. Fund manager charges: 0.12-0.3%.
Allows transfers? Yes, though non-LISA transfers in will eat up your LISA allowance
Exit/transfer fees: None, though charges £25 per holding for 'in specie' transfers (where you transfer a fund/holding directly to a new provider without cashing it in first – these are rare)

APPLY

OneFamily*

Choice of two funds depending on your attitude to risk, but high management charges 

Apply*

Invest in the OneFamily* Lifetime ISA and you can choose from its two funds: the 'Global Equity Fund' (mostly shares, so higher risk) or the 'Global Mixed Investment Fund' (includes 60% corporate bonds, which tend to be lower risk).

You pick your fund when you open your account. You're able to switch between the two, but you can't hold both funds at the same time. Again, this is a limited choice of portfolios, and you can't decide what goes in them, so be careful if selecting this.

What can I invest in? Choice of two funds
Min investment: £250 lump sum or £25/mth | Max investment: £4,000/yr
Annual fees: 1% annual management charge + 0.3% investment expenses charge 
Allows transfers? From Help to Buy ISAs, though transfers in will eat up your LISA allowance
Exit/transfer fees: None

APPLY*

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Lifetime ISAs

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Hargreaves Lansdown, Nutmeg

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