As the new "Lifetime Isas" – dubbed Lisas – launch to the public on Thursday, we've outlined exactly what this new initiative could mean for your savings and how to open your account. The Lisa is effectively a replacement to the government's Help to Buy Isa which launched in December 2015 to help first-time buyers to get onto the property market with a 25 per cent increase on contributions of up to £200 per month.
It has been suggested that the Lisa is an improvement on the Help to Buy scheme, with the government paying a 25 per cent bonus on an allowance of up to £4,000 per year – however the scheme hasn't been met entirely without criticism.
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Who is eligible for a Lifetime Isa?
Anyone between the ages of 18 and 39 can apply for a Lifetime Isa as of 6 April 2017.
© Photo: iStockWhere can I get a Lifetime Isa?
Nutmeg, the Share Centre and Hargreaves Lansdown are the only banks or building societies to currently offer Lifetime Isas. Skipton Building Society will offer a Lisa from June. Many of the leading high street banks have said they are still considering whether to launch their own Lifetime Isas to customers, with Santander saying they have "no plans" to launch the Lisa.
How much can I save and what will I receive from the government?
You will be able to save up to £4,000 per year. The government will then pay an extra £1 for every £4 saved, so you will receive £1,000 extra per year if you save the full £4,000. The first bonus will be paid at the end of the 2017/2018 tax year, then will be added monthly thereafter.
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What happens when I turn 40?
You are no longer eligible to open a new account. However if you already have a Lifetime Isa you will be able to continue saving and receive the government bonus up to the age of 50.
When can I access my money?
You can access the money if you're using it to buy a first home (up to the value of £450,000), if you're over 60 or are terminally ill.
© Photo: iStockWhat happens if I need the money earlier for any reason?
You will be able to access your savings at other times, however you will pay a 25 per cent charge on your total pot. This is intended to reclaim the government bonus on your savings, however it means you'll actually end up with less money than you put in.
For example, if you have £1,000 in savings and receive a 25 per cent top from the government you would have £1,250 in your account. Should you need early access to this, the government's 25 per cent exit penalty would leave you with £937.50.
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What are the disadvantages?
You can't make contributions into the Lifetime Isa beyond the age of 50, although you can still keep the account until you turn 60. The exit charge is another big disadvantage to many.
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