A building society has improved the interest rate on its Lifetime ISA, which can be used as a way for first-time buyers to save for a deposit on a home.
The Nottingham has announced it has increased the tax-free rate from 1% to 1.25% on its Lifetime ISA (LISA) to help savers maximise their house buying potential.
It comes as research revealed take up of LISAs has been low, and failed to miss Government targets. The study by analytics firm, GlobalData also raised concerns people had been put off by the complexity of the product.
Help to Buy ISA alternative
However, with the Help to Buy ISA due to be axed in November, the LISA could prove a viable alternative for people who want to save for a deposit and benefit from a generous cash top up.
The Help to Buy ISA, which is designed exclusively to help people buy their first home, offers a 25% bonus up to a maximum of £12,000.
The LISA, meanwhile is available as savings scheme for those saving for their first home or as a way of putting cash away for retirement. You must be aged between 18 and 40 to open the account. However, it also enables savers to gain the same bonus as the Help to Buy savings plan.
Jenna McKenzie-Day, senior product manager at The Nottingham, said: “With the Help to Buy ISA being pulled at the end of next month, LISA offers an alternative to those looking to get onto the property ladder to not only save for a deposit but to get to it quicker thanks to the Government bonus of up to £1,000 a year.
“We have always believed that the Lifetime ISA is a strong alternative and our commitment to it is shown by the fact we are the only organisation offering it both on the high street via our branches and online.”
Reducing complexity
Currently most LISAs were available to open online only, a factor GlobalData warned could be putting off many potential customers.
Oliver Wintle, banking analyst at GlobalData, said: “Rather than a lack of demand, one barrier to uptake could be the complexity of the product.
“Some MPs have called for the scheme to be scrapped altogether due to its complexity, and leading building society Nationwide has shunned LISAs for the same reason.
“Yet there are ways to tackle this issue. Building societies should be using their branch network to their advantage, both to offer advice to customers when opening LISAs and to cross-sell the product.
“Currently the likes of Skipton and Newcastle Building Society only let users open LISAs online. Nottingham Building Society is an example of a company bucking this trend, as it allows users to apply both in-branch and online.”
The top rate for a cash Lifetime ISA is from Moneybox, which is offering 1.4%. The Newcastle and Skipton building societies offer rates of 1.1 and 1% respectively. For more information on the Lifetime ISAs available click here.
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