There are many benefits of opening up a savings account as an adult. In terms of saving for a house, the government have a bonus schemes that you can take advantage of. With the deadline to open a Help to Buy ISA (Individual Savings Account) having now passed, there is another ISA that can help you to save for your first home. As such, it’s a good idea to assess whether opening a ‘Lifetime ISA’ could be suitable for you.
Lifetime ISA vs Help to Buy ISA
Size of bonus
The Help to Buy ISA offers you a bonus of up to £3,000 as long as you can save £12,000 before you claim this. On the other hand, the Lifetime ISA offers a maximum potential bonus of £32,000 based on you saving £4,000 a year from the age of 18 to 50.
The Lifetime ISA will put 25% on top of your deposits, of a value up to £4,000 a year. So if at the end of year 1 you have deposited £4,000, your balance will be boosted to £5,000 with the bonus. Remember the amounts detailed above are if you want to achieve the maximum available bonuses.
Don’t get put off by some of the figures and remember that whatever you can afford to save will still receive a 25% bonus.
The Lifetime ISA gives you the flexibility to purchase a house up to the value of £450,000 anywhere in the country whereas the Help to Buy is only suitable up to £250,000 outside of London or £450,000 in London.
When the bonus is paid
Help to Buy ISA offer you a government bonus between exchange and completion on a house, and this must be requested by a solicitor or conveyancer. Lifetime ISAs pay the bonus monthly and you can receive interest on this.
Whether you are fully committed to buying a house
The Lifetime ISA requires account holders to lock their money away, with the only reasons for withdrawal being for a first home or for retirement. There is a penalty charge if you withdraw the money for any other reason (excluding terminal illness) and you will get back less than you initially invested.
As a result, before you open a Lifetime ISA over a Help to Buy – which doesn’t issue a penalty charge but will remove the bonus – make sure that you will use these savings for a house or you could see yourself lose some of your money.
How often you can set money aside
Lifetime ISAs allow you to deposit lump sums, whereas Help to Buy doesn’t. This could affect your decision of which to go for, as sometimes it could be better to see what money you have leftover at the end of the year to deposit in bulk, whereas for others it may be better to deposit the same amount each month.
So the main point to take away from all of these factors is – don’t panic if you didn’t set up a Help to Buy ISA by the deadline, as a Lifetime ISA may be more beneficial to helping you save for a house depending on your circumstances.
Remember, it is important to look at a wide range of resources when opening any financial account to ensure that you are fully informed about your options!
If you’re wanting to move out a bit sooner than when you can afford a home, you might find this post about finances when renting useful.
The information in the blog has come from: https://www.helptobuy.gov.uk/help-to-buy-isa/faq/ https://www.moneyadviceservice.org.uk/en/articles/lifetime-isa-faq https://blog.moneysavingexpert.com/2016/04/the-help-to-buy-isa-v-lifetime-isa-which-should-first-time-buyers-get/