Martin Lewis explains savings account that pays 25% bonus | Personal Finance | Finance
Martin Lewis has shed light on the “simple reason” why savers might not be familiar with many of the providers offering LISA accounts, which come with a generous 25% annual bonus.
On his popular podcast, The Martin Lewis Podcast, the financial whizz offered advice to a listener whose son’s Junior ISA had matured and was considering a LISA for further savings.
The concerned mother, Carly, queried: “I’ve heard you talking about LISAs but after doing some research we couldn’t find any high street banks or building societies that offered it.
“I was worried if he applies for a LISA… I’m just wondering why the banks and building societies don’t offer LISAs anymore.”
Lewis pointed out that mainstream banks have historically shied away from LISAs for a “very simple reason” before delving into a brief history lesson for his audience.
He traced the origins of LISAs back to George Osborne’s tenure as Chancellor, saying: “This was an experimental product by George Osborne.
“He introduced the saving for retirement option as he sought an alternative to traditional pension savings. The rationale behind this, according to Lewis, was Osborne’s accounting strategy; by encouraging LISA savings over pensions, the immediate burden on the exchequer is lessened, with costs only arising when individuals withdraw their funds.”
He frankly compared this to “George Osborne kicking the can down the road” for future governments to handle LISA withdrawals.
However, addressing Carly’s query, Martin clarified: “The problem is, for the vast majority of people, LISAs are not the best place to save for retirement.”
“The only individuals for whom LISA appears a decent option are those who’ve exhausted all their regular pension entitlement or basic rate, self-employed taxpayers. As a result, many major banks and building societies were so fearful they would be accused of mis-selling…They decided the least risky course was simply not to offer Lifetime ISAs.”
He reassured that although Carly and other savers might not recognise the companies offering Lifetime ISAs, all legitimate ISAs are “fully covered by the financial services compensation scheme”.
Lifetime ISAs are accessible to individuals aged between 18 and 39 with an annual limit of £4,000 they can contribute each year. The government adds a 25% bonus on top of whatever interest rate the provider offers on each LISA.
However, the caveat with LISAs is that they can only be used to purchase your first property or after turning 60 for retirement. Martin further explained: “If you attempt to withdraw it for any other reason before you’re 60, terminal illness being another exception, you incur a penalty effectively of 6.25% of the money you put in. It’s more complex than that but we’ll label it as such.”
