Everyone born in these years urged to put £1 in account now | Personal Finance | Finance
Households are being urged to put £1 into an account now to secure thousands of pounds in handouts from the government in future.
A lot of scrutiny has been directed at Cash ISAs this year, after strong rumours that Chancellor Rachel Reeves would cut the £20,000 per year limit on the tax-free savings.
But there’s a little known type of ISA which slips under many people’s radars that can be even more beneficial than a Cash ISA or a Stocks ISA – a financial product called the Lifetime ISA (LISA).
What many don’t realise is that there’s a government backed savings scheme that helps people aged 18 to 39 to buy a house up to the value of £450,000 – and even if you don’t end up getting on the property ladder, you can still use it to save for later in life.
The main perk of a LISA is the free government money. You can put up to £4,000 a year into a LISA and the government will give you an extra £1,000 on top, totally free, every year.
All you have to do is deposit £4,000 into the LISA and you get given another £1,000 by the government. It’s a 25% bonus, so even if you can’t max it out, you’ll still get a bonus top-up. So if you put just £1,000 in, you’ll still get a bonus £250.
These LISA accounts are offered by all the big brand banks like HSBC, Natwest, Halifax and so on and each offers different interest rates on the cash but will all qualify for a government bonus.
The advice applies to everyone born between August 1986 and August 2007 as of right now because you need to be aged 18 to 39 to open one, though you can still keep getting the government bonus for years more, until you reach 50.
Financial firm Hargreaves Lansdown explains how they work: “A Lifetime ISA is a flexible, affordable way to save and invest for your first home or later life. You can open one if you’re between 18 and 39 years old.
“You can choose to save cash or invest in the stock market, and as with other ISAs, your money can grow free from UK tax. But the real benefit is a 25% government bonus worth up to £1,000 a year.
“While you need to be between 18 and 39 to open a Lifetime ISA, you can still pay in – and get the government bonus – until you turn 50.”
Up to £4,000 can be put into the tax-free account every year until you reach 50, but you must make your first payment into an ISA before you reach 40. The government will then add a 25% bonus to your savings, up to a maximum of £1,000 per year.
The bonus is only payable after the account has been open for one year but the money doesn’t have to be sat in there the entire time, so you can open the account now and then dump savings into it later to get the bonus.
The only downside is that if you do need to pull the money out for something else, ie not for a house or post-50 savings, you will end up losing money. This is because you pay a 6% penalty for withdrawing it early.
But if you open a LISA account with just £1, you only risk losing 6p.
Money expert Martin Lewis has previously explained why just opening a LISA and popping £1 into it before you turn 40 is a good idea, as you’ll be be able to keep the LISA and use it later, and if you don’t end up needing it, you only lose 6p.
Martin said: “You may as well put £1 in now in case you want to use it in the future. Then the clock’s ticking and it’s been open a year. Great if you have kids and you want to put money in for them – get them to put a quid in now. The clever thing to do right now.”
