Positives and Negatives of the Help to Buy ISA and the Lifetime ISA

The Help to Buy ISA is a one-of-a-kind savings account that is meant to aid first-time buyers to rise on the property ladder. The initial limit is £ 1,200, and from there, you can save £200 every month. Any interest you earn on your money is normally tax-free. Whenever you are looking to buy a home, the government usually tops up your savings with a 25% bonus, which is tax-free also. The highest bonus you can receive is £3,000 applying to £12,000 savings.

On the other hand, the lifetime ISA (LISA) is meant for people aged between 18 and 39 years old to help them save for both their first home and retirement. As long as you register before the age of 40, you are in a position to save up to £4,000 every year until you are 50. You can do this through stocks, shares or cash savings. Below are some of their pros and cons.

Advantages of Help to Buy ISA

• You get tax-free interest
• The government offers you 25% bonus
• You can keep saving for as long as you wish
• You can access your savings and the tax-free interest that it has accumulated
• It can be used on any property be it a new-build or resale as long as it is in the UK
• You are free to switch to any other account if you feel that the rate has become uncompetitive

Disadvantages

• The saving process is slow as you only contribute £200 every month, meaning it will take you 4.5 years to claim their maximum government bonus
• It is only for first-time buyers who have never owned homes anywhere in the world
• To qualify for the 25% government bonus, you will need to have a balance of not less than £1,600
• You don’t get any interest on the government bonus; only the 25% of whatever balance you have saved, which could be between £1,600 and £12,000
• The government bonus cannot be used as part of your deposit since you only get it at the end
• Any home you wish to buy must be worth less than £250,000 or £450,000 in London. It also has to be bought with a mortgage.
• Unlike with lifetime ISA, it is only available in cash. This means that you cannot have a stocks and shares ISA.

Lifetime ISA Advantages

• You can transfer your LISA to various providers in case the interest rate changes and get another provider
• You get paid your LISA contribution 25% bonus together with your investment sum each year until you reach 50 years
• It offers you an option of investing in the stock market, which gives you a potential for greater and longer-term returns. This will help you build a bigger deposit quicker.

Disadvantages

• High withdrawal fees- if you are a contributor and decide to get all your cash from LISA and spend it on anything else rather than buying a new home, you will be required to repay all the government bonuses and an additional 5% charge for early withdrawal.
• Limited provider choice- there are just a few LISA providers, and none of them are banks or building societies.
• Higher-rate taxpayers are better off with a pension- if you are a higher-rate taxpayer, it would be wiser to have a pension rather than a LISA. This is because your tax relief will be set higher until you reach their allowances.

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