Lifetime ISAs

Top Lifetime ISAs (LISAs)
How they work, who they’re for and which provider pays the most

Anyone aged 18 to 39 is eligible to open a Lifetime ISA (LISA). This account allows you to save up to £4,000 annually, which can be used for purchasing a first home valued up to £450,000 or for retirement. Additionally, the government contributes a bonus of up to £1,000 each year. This guide will explain how LISAs function, help you determine if they suit your needs, detail how you can receive the bonus, and highlight the best options available.

Top-pick Lifetime ISAs

• Top cash LISAs
  • Moneybox – 5%, app-only
• Investment LISAs to try

What is a Lifetime ISA?

A Lifetime ISA (LISA) allows you to set aside up to £4,000 each tax year for either purchasing your first home or preparing for retirement, with the government adding a 25% bonus to your savings. This means you could receive an extra £1,000 in free money every year. In addition, any interest you earn on your savings is tax-free, thanks to the ISA status.

• Who is eligible to open one? Individuals aged 18 to 39. Detailed information is provided below.
• When can you access your funds and the bonus? You can use the money and bonus towards a deposit on your first home (refer to the LISA for first-time buyers), or after reaching the age of 60 (refer to the LISA for retirement). If you choose to use the LISA for buying your first home, you can continue to keep and contribute to the account for your retirement savings.

To utilize the LISA and the associated government bonus for purchasing your first home, you must have had the account open for at least a year.

How a Lifetime ISA works

Here’s a rundown of the essential information about Lifetime ISAs. In addition to this overview, you should also check out the specifics on using a LISA for buying your first home or for retirement, depending on your intended use.

1 – You get a 25% bonus each tax year on up to £4,000

You can potentially save up to £4,000 annually in a Lifetime ISA (LISA) by depositing a lump sum or adding cash whenever you can. The government will then provide a 25% bonus on your savings. For example, if you deposit £1,000, it will grow to £1,250, and if you deposit the full £4,000, it will become £5,000, not including any interest or investment growth.

• The bonus is granted each year you make a contribution to your LISA, up until you turn 50.
• The bonus is credited monthly (provided you’ve made a contribution that month) and typically takes between four and nine weeks to process.
• Bonuses are awarded on contributions only, not on cash interest or investment returns.
• Once the bonus is in your account, it is treated the same as your other savings, meaning it will also accrue interest or experience investment growth or loss.
• The total maximum bonus you can receive is £33,000 if you start your LISA at age 18 and contribute the maximum amount every year until you reach 50 (or £32,000 if you were born on 6 April).

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

Individuals between the ages of 18 and 39 are eligible to open a Lifetime ISA (LISA).

For grandparents or parents looking to support their children or grandchildren in purchasing a home, contributing funds to a LISA is an effective method. However, it’s important to note that you cannot open the LISA account on their behalf; they must set it up themselves.

If you’re nearing 40, ensure you open a LISA before you reach the age limit. Contributions can be made into the LISA up until the day before your 50th birthday. After turning 50, while you will still benefit from interest or investment returns, no additional contributions can be made.

Transferring your LISA to a new provider, such as to obtain a more favorable interest rate, is permissible and you can continue to make contributions after the transfer. However, you cannot establish a new LISA for new deposits once the original account is in place.

As always when there’s an age limit, some will miss out. For the many people who have 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. If it’s not right for you, see our Top savings, Top cash ISAs and Pension savings guides.

3 – Your interest (or investment growth) is tax-free in a Lifetime ISA

The Lifetime ISA (LISA) is a specific type of Individual Savings Account (ISA) designed to help you save while benefiting from tax-free interest.

For the current tax year, you can contribute up to £20,000 across all ISAs. If you allocate £4,000 to your LISA, you’ll receive a 25% government bonus on that amount, boosting your savings. This means you can still deposit £16,000 into other ISAs without exceeding your annual limit. Importantly, the government bonus doesn’t affect your overall ISA allowance.

The tax implications vary depending on whether you choose to save in cash or invest within your LISA.

Cash LISAs

Interest is earned tax-free on both your contributions and any state bonuses already present in your account when the interest is accrued. You retain all of this interest, and it will itself generate interest the following year – a process referred to as ‘compound interest’.

Furthermore, the interest you accumulate does not affect your personal savings allowance. This means it does not influence your entitlement to earn up to £1,000 per year in interest tax-free as a basic-rate taxpayer, or £500 if you fall into the higher-rate taxpayer category.

Investment LISAs

Investment returns come in three primary forms: dividends, capital gains, and bond interest. While you may be liable for taxes on these earnings outside of a LISA, within a stocks & shares LISA, you are exempt from paying any taxes on them.

4 – You can open and contribute to a cash ISA and a Lifetime ISA in the same tax year

For the 2024/25 tax year, the total ISA allowance is £20,000. This amount can be allocated between a Lifetime ISA (LISA) with a maximum contribution of £4,000 and the remaining funds can be placed in other types of ISAs, such as cash ISAs, stocks & shares ISAs, or innovative finance ISAs (which focus on peer-to-peer lending) within the same tax year.

Additionally, you can have both a Help to Buy ISA and a LISA simultaneously. However, you cannot claim the first-time buyers’ bonus from both accounts. You can, however, receive the Help to Buy ISA bonus when purchasing your first home and then utilize the LISA for retirement savings along with its bonuses.

For a comprehensive overview of the various ISA types available, refer to our Complete ISA Guide.

Can I transfer cash from other ISAs in to my Lifetime ISA?

If you currently hold an ISA, some providers allow you to transfer funds from that ISA into your Lifetime ISA, even if the original ISA isn’t a Lifetime ISA. However, there is a limit: you can only transfer up to £4,000 from other ISAs into your Lifetime ISA in a single tax year, which also includes Help to Buy ISAs.

It’s important to note that transferring funds from ISAs from previous years does not impact your contribution limits for the current tax year.

For example, if you transfer £4,000 from an ISA from a previous year into your Lifetime ISA during the 2024/25 tax year, you would still be able to contribute up to £20,000 into a cash ISA, stocks & shares ISA, or an innovative finance ISA (or any combination of these) within the same tax year. However, you would have fully utilized your £4,000 Lifetime ISA allowance for 2024/25.

5 – You’ll pay a penalty if you withdraw the cash and don’t use it for a first home or retirement

According to the standard LISA regulations, it’s possible to withdraw some or all of the funds from your LISA before reaching age 60, even if you’re not purchasing a property. However, such withdrawals incur a 25% penalty on the amount taken out. Therefore, it’s advisable to use the LISA only if you are certain that the funds will be used for one of its two specific purposes: buying a first home valued at £450,000 or less, or for retirement.

The withdrawal rules apply equally to both partial and full withdrawals. Here’s a practical breakdown of how these rules operate…

• Withdrawals have a 25% penalty, equivalent to a loss of just over 6%. At first glance, it might seem that receiving a 25% bonus followed by a 25% penalty would simply leave you where you began. However, the mathematics behind this is not quite that straightforward.Let’s say you deposited £1,000 and earned a 25% bonus, resulting in a total of £1,250 (for simplicity, excluding interest). If you then decided to withdraw the funds and close the account, the 25% penalty would amount to £312.50. Consequently, you would be left with £937.50.In reality, this calculation means that if you withdraw your funds for reasons other than purchasing your first home or for retirement, you effectively forfeit 6.25% of your original contribution.
• You don’t pay the withdrawal charge if you die or are terminally ill. Under the LISA guidelines, if you have fewer than 12 months left to live, you can keep the bonus without incurring any penalties. Should you pass away, any funds in your LISA, including the accrued interest and bonuses, will be transferred to your beneficiaries without penalty. However, these funds will no longer be sheltered within an ISA and will be included in your estate for inheritance tax calculations.

6 – Once it’s opened, you’re not locked in – you’re free to transfer it to another provider

Once you’ve opened a LISA, you’re not bound to the initial provider you selected.

Just like with regular ISAs, the interest rates on cash LISAs fluctuate, so it’s important to monitor your account regularly. If you find a better rate with a different provider, be prepared to transfer your funds to take advantage of the improved deal.

This also applies to stocks & shares LISAs: you might want to shift your investment focus or find options with lower fees, and you have the flexibility to make these changes.

Remember, you can only open and contribute to one LISA per tax year. If you decide to transfer your current year’s contribution, you must transfer the entire amount.

Be aware that many providers restrict transfers to those aged between 18 and 39, which means options may be more limited if you are 40 or older. Additionally, while LISA interest rates are variable and can change at any time, be cautious of rates that include fixed-term bonuses. These bonuses often result in a significantly reduced rate once the bonus period concludes. If you’re nearing 40, it might be wise to avoid such rates to prevent being stuck with a lower rate after the bonus ends.

7 – In a cash LISA, your savings are protected up to £85,000 per financial institution, but with a stocks & shares LISA, the protection’s more complex

In this guide, we feature cash LISAs that are protected by the UK’s Financial Services Compensation Scheme (FSCS), offering you savings protection of up to £85,000.

However, it’s important to note that this protection applies per banking institution, not per individual account. So, if you have additional savings with the same bank as your LISA savings, you might exceed this limit. For further details, refer to our Savings Safety Guide.

If you’re considering a stocks & shares LISA, be aware that it involves investment risk—the value of your investments can fluctuate. This type of LISA is covered by a different FSCS protection scheme.

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

Your investments are safeguarded by the FSCS in the event that the provider of the investment fails – for example, if you have a stocks & shares LISA with a bank and that bank collapses. However, this protection does not extend to losses resulting from the failure of the underlying investment itself.

To clarify, if you hold shares in a company and that company goes under, there is no FSCS protection for those losses because that’s an inherent risk of investing.

On the other hand, if you purchase shares or funds through a platform, such as one that simply facilitates the buying and selling of these assets, the platform’s collapse does not impact your ownership of the shares or funds. Consequently, there would be no compensation for such a scenario.

Generally, if you are eligible for compensation, you would receive 100% of the first £85,000 lost.

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

For first-time homebuyers or those considering buying in the future, it’s essential to understand the nuances of the Lifetime ISA. Unlike a traditional savings account, the Lifetime ISA has its own set of rules and may not be suitable for everyone.

If you haven’t already, make sure to review the general information provided earlier. It contains crucial details on how these accounts operate and the potential penalties for withdrawing funds early.

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

If you’ve previously owned any property, whether domestically or internationally, you are ineligible to use a Lifetime ISA (LISA) for purchasing a home.

This restriction applies even if you inherited a property or a portion of one, and subsequently sold it without occupying it. Ownership of residential property through a company or trust that you could (or could have) lived in also disqualifies you from being considered a first-time buyer for LISA purposes.

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

To qualify for the bonus, you must purchase a residential property valued at £450,000 or less using a mortgage. Cash purchases and buy-to-let mortgages are excluded.

This requirement meets the needs of most buyers, but those purchasing in high-cost areas may find themselves restricted. ExEconomics has advocated for changes to this limit, suggesting that individuals who buy properties above the current threshold should be able to withdraw their funds from a LISA without incurring penalties. They also propose adjusting the maximum property value in the future to keep pace with house price inflation.

But, if you don’t yet have a LISA, don’t count on any changes – make sure it’s right for you BEFORE opening an account.

The Lifetime ISA can be combined with other Government schemes such as Right to Buy, shared ownership, and Help to Buy loans. It is also applicable for those undertaking a self-build project.

You can access the funds in time for the property exchange, allowing you to apply it towards both the deposit required by the seller (the exchange deposit) and the deposit that the mortgage lender will need at completion. It’s important to understand the distinction between these two types of deposits.

The primary purpose of the LISA is to assist in purchasing your first home, so immediate rental of the property after buying it is generally not permitted (although this can change if your situation evolves).

Can I use an ISA for a self-build property?

Yes, you can use funds from a LISA, including the bonus, to purchase land for constructing a self-build home, as long as you meet the other requirements. These include the land being located in the UK, purchasing it with a mortgage, the total cost being £450,000 or less, completing the purchase within 90 days of withdrawing the funds, and ensuring that the home you plan to build is your first property and you intend to reside in it.

The Treasury recommends consulting your solicitor if you have any uncertainties about the eligibility of using a LISA for this purpose.

Can I use the LISA to ‘staircase up’ if I have a shared ownership property?

If you’re aiming to increase the share of property you own on your own, a LISA won’t be applicable since you already have a stake in the property.

However, if your partner is a first-time buyer and fulfills all the necessary criteria, they can utilize a LISA and its associated bonus to assist you in purchasing a larger share. Keep in mind that for your partner to use their LISA and bonus for this purpose, they must be listed on the property’s title deeds.

Is there a minimum mortgage amount to be able to use the LISA?

No. The primary requirement is that you secure a residential mortgage, not a buy-to-let loan. If you’re considering taking out a mortgage purely to utilize the LISA benefit while being able to pay in cash otherwise, be sure to calculate whether this approach is financially advantageous.

Many lenders impose a minimum loan amount, typically around £20,000 or £25,000. This means you’d need to borrow at least this sum. Additionally, you’ll need to cover the costs of the lender’s valuation and legal fees associated with the property purchase. Be aware that the mortgage might come with early repayment charges if you plan to pay it off soon after obtaining it.

Before proceeding, verify that the state bonus you receive outweighs the additional costs incurred from the mortgage compared to buying the property outright with cash.

3 – You need to have opened your first LISA for a year or more to be able to use it for a home

To use your Lifetime ISA (LISA) and its bonus towards your first home without incurring a penalty, you must have held the account for a minimum of 12 months. Withdrawing funds before this period will result in a penalty that not only forfeits the bonus but also incurs an additional charge.

You can transfer your existing LISA to a different provider at any time to potentially benefit from a higher interest rate. This transfer does not reset the 12-month clock, meaning you can switch providers without losing your progress. For example, if you open a new LISA and transfer it after six months, you’ll need to wait an additional six months to access the funds penalty-free.

You can also open new LISAs in different tax years while holding existing ones. Although it’s permissible to have multiple LISAs, you can only contribute to one LISA per tax year. When buying your first home, you can withdraw from each of your LISAs penalty-free, provided each account has been open for at least 12 months. Additionally, you can consolidate multiple LISAs into a single account if desired.

If you have not yet started a LISA and need to purchase a property within the next year, you will have to save using other methods, as the LISA scheme will not be available to you in this timeframe.

4 – Wannabe first-time buyer? Even if you’ve no savings, you can open a LISA with £1 to start the clock

To utilize a Lifetime ISA (LISA) for purchasing your first home, it’s essential to have it open for a year. Therefore, prospective first-time buyers should consider opening a LISA with even a minimal deposit (as little as £1) to start the clock on the one-year requirement. This initial deposit sets the stage for future contributions.

If you end up not buying a property, or if you purchase a home priced above £450,000 or abroad, you can withdraw the £1 deposit with only a minor loss of about 6p.

However, if you do proceed with using the LISA, even with just a £1 balance maintained for a year, you can then contribute up to £4,000 annually. Shortly after, you will receive a bonus, boosting your total to £5,000, which can be used towards your deposit.

5 – Each person has their own LISA, so couples can have one each

If you’re considering purchasing a home together, it’s crucial to note that a joint Lifetime ISA (LISA) doesn’t exist; both you and your partner or spouse will need to have individual accounts. Here’s how it works:

• For first-time buyers who are purchasing with someone who has previously owned a property, you can each open a LISA to contribute towards the purchase. However, the partner with prior property ownership is not eligible to open a LISA.
• If both of you are first-time buyers and are purchasing a property valued at £450,000 or less, you each can open a LISA, effectively doubling the bonus you receive. Keep in mind that the £450,000 threshold remains unchanged regardless of the number of LISAs you use—it doesn’t increase simply because both of you are saving through the LISA.

6 – Got a Help to Buy ISA? You can transfer it to a Lifetime ISA, but you’ll need to time it right to make it work

The Help to Buy ISA (H2B ISA) is no longer available for new sign-ups, but it still offers a 25% bonus if the funds are used for purchasing a first home. If you already hold an H2B ISA, you can also open a Lifetime ISA (LISA) if you’re between 18 and 39 years old. However, you can only utilize the bonus from one of these accounts for buying a property.

Therefore, your main choice is whether to retain the H2B ISA or transfer the funds to a LISA, especially if you plan to use the LISA for retirement savings instead.

For ease of understanding, here are three key advantages of choosing a Lifetime ISA (LISA) over a Help to Buy ISA (H2B ISA):

• Higher Savings Limit: With a LISA, you can contribute up to £4,000 annually, compared to just £2,400 per year with a H2B ISA. This means you can accumulate savings and receive your bonus faster with a LISA.
• Larger Bonus Potential: If you save more than £12,000, the bonus on a LISA is significantly larger. While the H2B ISA has a maximum bonus of £3,000 (based on saving £12,000), the LISA offers a much higher potential bonus of up to £33,000 if you save £4,000 each year from age 18 to 49.
• Broad Property Price Range: A LISA allows you to purchase a property worth up to £450,000 anywhere in the UK. In contrast, the H2B ISA has a limit of £250,000 for properties outside London, or up to £450,000 within London.

Switching from your Help to Buy (H2B) ISA to a Lifetime ISA (LISA) comes with three possible downsides:

• A LISA must be held for at least one year before you can use it to purchase your first home. If you haven’t set up a LISA yet and plan to buy within the next year, it’s better to keep your H2B ISA.
• Withdrawing funds from a LISA incurs a 25% penalty, unless the money is used for a first home or retirement. Unlike the H2B ISA, which allows you to withdraw your funds at any time (excluding the bonus), the LISA’s penalty means you’ll forfeit about 6% of your savings. Therefore, if you’re uncertain about buying a home, sticking with the H2B ISA might be a safer choice.
• If your H2B ISA balance exceeds £4,000, you’ll have to wait until the next tax year to transfer the full amount to a LISA. Transfers from a H2B ISA to a LISA count towards the annual £4,000 LISA limit. For example, if you have £12,000 in a H2B ISA, it will take three tax years (at least a year and two days) to transfer the entire amount to a LISA.

Timing is crucial because if you plan to purchase a home while holding funds in both accounts, you could forfeit the bonus on part of your money. Therefore, if you decide to transfer, ensure you have sufficient time before your purchase to complete the transfer process. If not, it may be wiser to stick with your H2B ISA.

How to transfer your Help to Buy ISA savings into a Lifetime ISA

If you find that a LISA (Lifetime ISA) is advantageous for you, the process is simple: open one and transfer the funds. Note that you can only move up to £4,000 within this tax year (or less if you’ve already contributed to the LISA), as any funds transferred from a Help to Buy ISA (H2B ISA) count towards this limit. Here’s how to proceed with the transfer:

• If your LISA provider accepts transfers from a H2B ISA, complete their transfer form when applying. This won’t affect your overall £20,000 ISA limit. The transfer process typically takes between two to four weeks.
• If transfers aren’t accepted by the LISA provider, you’ll need to withdraw the money from the H2B ISA. While it’s ideal to find a high-paying LISA provider that accepts transfers, if that’s not possible, you’ll need to withdraw the funds and then deposit them into the LISA manually.

Keep in mind that this will reduce your £20,000 ISA limit for the current tax year in which you make the deposit. However, if you’re not close to hitting this limit, it shouldn’t be a significant issue.

If your H2B ISA balance exceeds £4,000, you should transfer £4,000 immediately and request to move the remaining funds when the new tax year begins. In certain cases, transferring a portion of your funds may result in the closure of your H2B ISA account. If this happens, you’ll need to withdraw the remaining balance, save it in another account (refer to top savings options), and then deposit it into a LISA once possible.

7 – Ready to buy? Ask the LISA provider to transfer money to your solicitor – don’t withdraw cash yourself

When you’re set to make a purchase, request that your LISA provider transfer the funds directly to your conveyancer or solicitor rather than to you personally. If you withdraw the money into an account in your name, a 25% withdrawal charge will apply. You’ll have access to all your savings, including the bonus, when you reach the exchange stage.

However, don’t rush—your property transaction must be completed within 90 days of transferring the funds from your LISA to your solicitor (refer to home-buying timelines for more details). If your purchase will take longer, you can either postpone withdrawing the money from your LISA or have your solicitor/conveyancer contact HM Revenue & Customs to request an extension on the 90-day deadline.

If your purchase falls through, don’t be concerned—you won’t incur any losses. The funds will be returned to your LISA account, and this will not affect your annual contribution limit. You can still contribute up to £4,000 in that tax year, provided you haven’t already reached the limit.

Lifetime ISA need-to-knows for retirement savers

If you’re considering the Lifetime ISA for your retirement savings, this section will provide essential details to help you determine if it’s suitable for your needs. However, if you haven’t reviewed the general information provided earlier, it’s advisable to do so first. This earlier information covers crucial aspects of how the accounts function and the potential withdrawal penalties you might incur if you access the funds before reaching age 60.

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

For those who are eligible for a Lifetime ISA (LISA) but are still decades away from turning 60, it’s important to remember that rules governing LISAs could change over time, potentially impacting your retirement savings. Here’s the current state of affairs:

• You can start accessing your LISA funds on or after your 60th birthday, and you have the freedom to use the money however you wish.
• There’s no requirement to withdraw all your funds at once; partial withdrawals are permitted.
• If you choose to leave the funds in your LISA beyond age 60, it will continue to accrue interest or experience investment growth or loss. The LISA remains active even after you reach 60.
• Withdrawals from a LISA for retirement purposes are tax-free, so you won’t incur taxes on the money you take out.
• Be aware that LISA savings can impact your eligibility for benefits. Unlike pensions, which are not considered when assessing means-tested benefits, LISA funds do affect your benefit eligibility. This means you might need to withdraw from your LISA and use those funds until your savings fall below the means-testing threshold. Additionally, LISA savings are considered assets in cases of bankruptcy or divorce.

2 – WARNING! For most, using a pension to save for retirement is likely to be far better than a LISA

The LISA (Lifetime Individual Savings Account) serves as a retirement savings vehicle akin to a pension, though it can be seen either as a substitute or a supplementary option since one can hold both. Despite their similarities, pensions and LISAs have distinct characteristics.

• With a pension plan, contributions are made from gross (pre-tax) income. For instance, if you’re a basic-rate taxpayer, putting £100 into your pension only costs you £80 from your paycheck, as that’s the amount you would have received after taxes.
• In contrast, a LISA is funded with net (post-tax) income. Thus, depositing £80 into a LISA costs you exactly £80. However, the government adds a 25% bonus, so your actual contribution grows to £100.

At first glance, the amounts you invest and receive may appear quite similar for basic-rate taxpayers. However, the situation becomes more intricate upon closer examination.

Where a pension usually beats a LISA

• If you’re currently employed, auto-enrolment mandates that your employer must match a portion of your pension contributions, unlike with a Lifetime ISA (LISA). This matching contribution is a significant advantage of pensions, giving them a clear edge over LISAs.
• When your employer uses a ‘salary sacrifice’ scheme for pension contributions, you benefit from both national insurance and tax relief.
• Higher-rate taxpayers enjoy a 40% tax relief on pension contributions. This means that contributing £100 to a pension only costs them £60, making pensions more advantageous than LISAs.
• Contributions to pensions do not impact your eligibility for benefits, but savings in a LISA can. If you were to become unemployed, you might need to withdraw your LISA funds (incurring a 25% withdrawal charge) before qualifying for some means-tested benefits, potentially depleting your retirement savings.
• In bankruptcy proceedings, LISA savings are considered assets, which might compel you to withdraw them early. Conversely, pensions generally offer protection from such claims.
• You can start withdrawing from pensions at age 55 (with the age gradually increasing to 58); however, you need to be 60 to access LISA savings without facing penalties.

Where a LISA usually beats a pension

• When accessing your pension (learn more about how to access your pension), you can withdraw only 25% as a tax-free lump sum; the remainder is subject to income tax at your marginal rate. In contrast, funds withdrawn from Lifetime ISAs (LISAs) are completely tax-free.
• Generally, you cannot access pension funds early, except in cases of critical illness or death. However, with a Lifetime ISA, you can withdraw funds early, albeit with a 6% penalty (find out more about LISA withdrawals).
• Some pensions, such as those for state-employed workers like NHS staff, can only be fully accessed at the state pension age, although a reduced amount might be available earlier. If this situation applies to you, a LISA may offer more favorable early access compared to a pension.
• Typically, a pension is likely to be a better option than a LISA for saving for retirement, particularly for those who are employed due to employer contributions or those who are higher- or top-rate taxpayers. Given the complexities involved, a comparison table might simplify things.

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

The Lifetime Individual Savings Account (LISA) offers two primary savings options. For first-time homebuyers, the cash LISA is often the preferred choice. This account functions similarly to a traditional savings account: you deposit your funds, which are protected, and you earn a fixed interest rate on your balance.

On the other hand, if you’re planning for retirement, you might want to consider the investment LISA. This type of account involves investing your money in stocks, shares, or funds, with returns depending on the performance of your investments. This option entails a degree of risk, as there is a possibility of losing some of your capital, but it also holds the potential for greater growth.

Your choice between these options should align with your risk tolerance and investment goals. Generally, it’s advisable to invest in stocks and shares for at least five years to weather any market volatility that could result in losses.

For those saving for retirement with a time horizon of more than five or ten years, taking on some risk with investments may be beneficial, given the potential for higher returns. However, it’s important to acknowledge the risk of losing money if the market or specific companies experience downturns.

If you prefer a more cautious approach, consider using a cash LISA one year and an investment LISA the next. Note that while you can have multiple LISAs, you typically cannot open and contribute to more than one in the same tax year.

Top-pick Lifetime ISAs

Below are the top cash Lifetime ISAs, as well as some stocks & shares Lifetime ISAs to try.

Cash Lifetime ISAs – what we’d go for

Moneybox’s 5% LISA pays the top rate, though it can only be opened and managed via its mobile app and the rate also drops to 4% after 12 months (min £1). You can transfer in to this LISA from other LISAs, though only if you’ve not held a Moneybox LISA in the past.

Tembo is another app-based provider with a lower rate of 4.3% (min £1).

If you’d prefer an online account where you can transfer in from another LISA, Paragon Bank is the top-payer at 3.51%. If you want to transfer in from any type of ISA, Skipton BS offers the top rate of 3.25%.

Stocks & shares Lifetime ISAs to try

Stocks & shares LISAs are much riskier than cash LISAs by their very nature. So there are two points 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, so you could lose money and get back less than you invest.

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

Investing falls outside the scope of ExEconomics expertise. Therefore, we don’t provide specific recommendations on the ‘best’ stocks and shares Lifetime ISA platforms or offer any particular investment suggestions. Instead, we’ve highlighted several popular platforms to give you a starting point for your own research.

There are primarily two types of platforms: those that allow you to make your own investment choices from a broad selection and those that assist in guiding you through the investment decision process.

‘Do-it-yourself’ Lifetime ISAs

The three LISA providers listed below offer a broad selection of investment opportunities, including thousands of shares, funds, and other assets. For those who prefer a hands-off approach, there are straightforward, fully-managed funds available where you deposit your money and investment decisions are handled on your behalf. However, these platforms might be better suited for seasoned investors.

If you’re feeling uncertain or daunted by the vast array of choices, consider the two ‘simpler’ LISA options mentioned below. These typically feature a more limited selection of funds and are generally managed entirely for you.

Simpler Lifetime ISAs with a limited choice of funds

The three Lifetime ISAs mentioned earlier cater to individuals who prefer a proactive role in managing their stocks & shares LISA. Conversely, the LISAs listed below may be better suited for those seeking a more straightforward investment option. These typically offer a smaller selection of funds tailored to various risk levels but may come with higher fees compared to the ‘DIY’ alternatives previously discussed.