Cash Lifetime ISA explained

A Cash Lifetime ISA (LISA) is an individual savings account that’s designed to help people save for their first home, or for retirement. That’s because the government gives you a 25% bonus on top of any money you save. 

You can save up to £4,000 into a Cash LISA each year, which is part of your annual £20,000 ISA allowance. That means with the 25% government bonus, if you saved the full £4,000, you’d get an additional £1,000 – totally free!

There is a caveat though: if you take money out of your LISA for any reason other than buying your first home or before you turn 60, you’ll incur a 25% withdrawal charge.

 

Who can open a Cash LISA?

As long as you’re between 18-40 years old and a UK resident you can open a Cash Lifetime ISA. Once open, you can keep paying into it until you’re 50. After that, you won’t be able to make any more deposits or get the government bonus – but you’ll still earn interest on your balance.

 

Lifetime ISA vs ISA

There are a few important differences between LISAs and ISAs. Both are individual savings accounts and both are “tax wrappers” (this means that as long as your money stays in that account, it offers some tax protection). Where things get interesting is what you can use them for.

LISAs are built to help you save for the future – specifically for your first home or for retirement. You get a 25% bonus from the government on any money you pay into a Lifetime ISA, but you’ll also be penalised if you withdraw money for a reason other than buying your first home or retiring. There are two types of Lifetime ISA available: a Cash LISA, and a Stocks & Shares LISA. 

 

Learn more about the different types of Lifetime ISA

 

ISA wrappers on the other hand, are purely an individual savings account. You can use an ISA for any reason, not just to buy your first home or retirement. Again, like with the Lifetime ISA, there are two types of ISA: Cash ISAs and Stocks & Shares ISAs. 

  • Cash ISAs are savings accounts that are free from income tax
  • Stocks and Shares ISAs are tax-efficient investment accounts. They’re popular with investors because any gains you make are tax-free

You can withdraw from them without losing any tax benefits, and you won’t be penalised for doing so. But, you don’t get a 25% bonus on your deposits with an ISA, and withdrawing from your account might reduce your current year’s allowance – which is set at £20,000 each tax year.

 

Who offers Cash Lifetime ISAs?

Lots of providers offer Cash LISAs (including Moneybox), but it’s important to remember they’re not all made equal. Picking the right one could make a real difference in how long it takes you to get through the door of your first home, or how much you’re left with in your retirement pot. 

 

The Moneybox Cash Lifetime ISA

The Moneybox Cash Lifetime ISA offers a market-leading interest rate of 3% (variable). That’s on top of the 25% government bonus you’ll receive, too!

And that’s not all. Moneybox has a whole host of tools for every stage of your home-buying journey. So you can go from first step to doorstep all from one app.

We have free in-app tools like our Mortgage Calculator to help you see how much you need to save to buy your first home (and how soon you could hit that goal).

Plus, you can get started with just £1! So, even if you’re not quite ready to start saving for your first home just yet, why not get the ball rolling today? Your Cash LISA needs to be open for at least 12 months before you can access it.

 

Open a Lifetime ISA today

 

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 is subject to change. All investing should be long term (min. 5 years). The value of your investments can go up and down, and you may get back less than you invest.