Dreaming of owning your own home or a stress-free retirement? A Cash Lifetime ISA could help you get there. Here, we’ve put together a guide to saving for your first home and retirement with the Cash LISA. Let’s dive in.
How does a Cash Lifetime ISA work?
A Cash Lifetime ISA (LISA) is a type of individual savings account (ISA) designed to help you save for your first home or for retirement. The key benefit? An added government bonus of 25% on your savings!
A Cash LISA is a tax-free savings account where you can save up to £4,000 each tax year. This £4,000 forms part of your overall annual ISA allowance of £20,000.
Here’s where it gets really exciting – the government rewards your savings with an extra 25% bonus for free. Imagine this:
- You save £4,000
- The government adds £1,000
- That’s £5,000 working for you!
If you save the full £4,000 into your Cash LISA, you’ll receive an extra £1,000 from the government every tax year – completely free! Even if you can’t save the full £4,000, you’ll get a 25% bonus on all savings up to that amount.
It’s important to know a few key things, though. If you withdraw money from your Cash LISA for any reason other than buying your first home (meeting specific criteria), you’ll pay a 25% withdrawal charge. However, you can make penalty-free withdrawals after you reach age 60.
Govt. withdrawal charge may apply. ISA and tax rules apply.
Are you eligible for a Cash LISA?
Great news! If you’re aged 18 to 39 and are a UK resident, you can open a Cash LISA.
You can then keep paying into it and getting that government bonus until you turn 50. After that, you won’t be able to add any more money or get the bonus, but your savings will still earn interest.
Cash LISA vs other ISAs: what’s the difference?
It’s important to differentiate between Cash LISAs and other types of ISAs. Both are individual savings accounts and “tax wrappers,” helping your savings grow tax-free. However, their purpose and rules differ.
Lifetime ISAs (LISAs):
LISAs, including Cash LISAs, are designed for specific goals:
- Buying your first home: LISAs help first-time buyers build their deposit faster.
- Saving for retirement: LISAs provide a tax-efficient way to save for your future.
The 25% government bonus is a key benefit of a LISAs. However, if you withdraw money early – meaning before you buy your first home (up to £450,000) or before you turn 60 – you’ll face a 25% government penalty. Also, you must have had your LISA open for at least a year to avoid this penalty when buying your first home.
There are two types of LISAs:
- Cash LISAs: Ideal for saving towards your first home purchase, offering tax-free interest on your cash.
- Stocks & Shares LISAs: Suitable for long-term investments, offering potential for higher returns (but also higher risk). All investing should be regarded as long term. The value of your investments can go up and down, and you may get back less than you invest.
ISAs (Individual Savings Accounts):
ISAs are general-purpose savings accounts. You can use them for any savings goal.
- Cash ISAs: Offer tax-free interest on your savings.
- Stocks & Shares ISAs: Offer tax-efficient investment opportunities.
ISAs offer tax-free savings, allowing you to access your own money with no tax implications. However, they don’t offer the 25% government bonus. Withdrawing from an ISA may affect your remaining annual ISA allowance.
The annual ISA allowance for the current tax year is £20,000.
ISA and tax rules apply.
Where can I open a Cash LISA?
Many financial providers offer Cash Lifetime ISAs, so it’s all about choosing the right one for you. The interest rates and how you access and manage your account can vary significantly, affecting your potential savings growth. Some providers offer access and management solely through their mobile app, while others have online platforms or both.
The Moneybox Cash Lifetime ISA
The Moneybox Cash Lifetime ISA is market-leading* and currently offers a rate of 4.70% AER (variable). This includes a 3.55% base rate (variable) and a fixed one-year bonus interest rate of 1.15% AER. Interest is calculated and paid on top of the 25% government bonus.
Moneybox also provides tools to support your home-buying journey:
- Mortgage Calculator: Use our free in-app Mortgage Calculator to estimate how much you need to save and track your progress.
- Home-buying gifts: Let up to four friends and family contribute directly to your home deposit via your unique LISA gift link.
- Housemates: If you’re buying with someone else, link your LISAs and see your combined progress. This is only available with LISA accounts.
Start saving for your future
You can start saving with Moneybox from just £1. Even if you’re not ready to buy a home immediately, opening a Cash LISA and starting to save can be beneficial. That’s because your Cash LISA needs to be open for at least 12 months before you can use it to buy your first home – starting from your first deposit.
*Source: Top of the Moneyfacts Cash Lifetime ISA provider rate table, March 2025
A 25% government penalty applies if you withdraw money from a Lifetime ISA for any reason other than buying your first home (up to £450,000) or for retirement, and you may get back less than you paid into your Lifetime ISA.
Tax treatment depends on individual circumstances and may be subject to change in the future.
It’s important to consider your personal circumstances and the relevant pros and cons offered by each type of account. You can pay into a Workplace Pension, and/or a Personal Pension (SIPP) as well as a Lifetime ISA. If you decide to opt out of your workplace pension and instead pay into a Lifetime ISA, you will not benefit from any employer-matched contributions as you would with a Workplace Pension.
It may also affect your current and future entitlement to means-tested state benefits. If considering the Lifetime ISA only for the purposes of retirement, we recommend you speak with an independent financial advisor.
