Lifetime ISA: Is It Worth It?

Matt | Personal Finance

Thinking about setting up a Lifetime ISA? In this Short, I walk you through the Pros and Cons of a Lifetime ISA, and help you decide if it’s the right move for your savings goals   Whether you’re saving for your first home or looking for ways to maximize your savings for retirement, this video will give you all the information you need to make an informed decision   #lifetimeisa #isa #savingmoney #personalfinance #moneytips #investing #retirementplanning #buyingahome

Transcript

00:00What are the main benefits of using a lifetime ISA versus a help to buy ISA?

00:04Number one is that you can save up to £4,000 per year with a lifetime ISA versus £2,400

00:11per year with a help to buy ISA. So you'll be able to save and earn your bonus on your savings

00:16quicker with a lifetime ISA. Number two is that you'll earn a larger bonus if you're able to save

00:22over £12,000. The maximum total bonus you can get with a help to buy ISA is £3,000 as you'll

00:29only get the bonus on the first £12,000 saved. Whereas the lifetime ISA doesn't have this cap

00:35and the maximum bonus is £33,000 if you are able to save £4,000 per year between the ages of 18 and

00:4450. And number three is that whereas with the help to buy ISA you can only buy a property costing up

00:49to £250,000 outside of London and £450,000 in London, the lifetime ISA allows you to buy a home

00:58for up to £450,000 anywhere in the UK. So on the face of it the lifetime ISA looks financially like

01:05the better option to go with. But there are also drawbacks to consider before making the switch

01:09from your help to buy ISA. The first is that a lifetime ISA has to be open for at least one year

01:15to be able to use it to buy a home. So if you've not opened an account yet and you know that you'll

01:19buy within a year then this probably isn't an option for you. The second drawback is that you'll pay a

01:24penalty to withdraw cash from your lifetime ISA unless it's used for your first home or retirement.

01:30So if you're not sure if you'll buy a home at all or you think you might need that money before

01:35retirement then the help to buy ISA is the safer option. And the third drawback is that if you have

01:40more than £4,000 saved in a help to buy ISA you'll need to transfer it over multiple tax years to move

01:47all your savings to a lifetime ISA. The money you transfer from a help to buy ISA to a lifetime ISA

01:53still counts towards the £4,000 lifetime ISA allowance each tax year. So if you have more

01:59than that saved you'll need to wait until after the 6th of April as that's the start of the next

02:04financial year to move another £4,000. For example if you had £12,000 saved in a help to buy ISA

02:11it would take you three tax years to move it all to a lifetime ISA. The timing is important as if you

02:17decide to buy whilst you've got cash in both types of accounts you would essentially be sacrificing

02:22the savings bonus on one pot of money. If you're going to switch then make sure that you have ample

02:28time before you're planning to buy a home to be able to move your cash and if you don't again

02:33it's best to stick with a help to buy ISA.

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