Skipton Building Society has become the first financial firm to offer a cash version of the Lifetime ISA.
Despite the disappointing interest rate of 0.50% – far lower than comparable cash ISAs – it does come with an attractive 25% bonus.
The Lifetime ISA was introduced on 6 April and allows anyone younger than 40 to put away up to £4,000 a year until they are 50.
It can be used by first-time buyers to fund a deposit for a property or taken tax free at 60 and has a tempting 25% bonus.
So for every £4 people save, the government will give them back £1, a bonus of up to £1,000 a year.
Lifetime ISAs are aimed at people looking to save a deposit for their first home or for retirement and are seen as the long-term replacement for Help to Buy ISAs.
However, choice is limited. The big banks and building societies have failed to get on board with the scheme, with only Nutmeg, The Share Centre and Hargreaves Landsdown ready to offer a Lifetime ISA at the launch.
There a number of Help to Buy ISA rates which beat the 0.50% offered by Skipton hands down, including Barclays which offers a Help to Buy ISA at 2.25%.
The average ISA rate is 0.87%, with Virgin Money offering a Cash ISA at 1.05%, while Paragon Bank has a five-year fixed cash ISA at 1.80%.
Rachel Springall, finance expert at Moneyfacts.co.uk, said: “It’s great to see Skipton is providing savers with a cash LISA and it may appeal to those who are not comfortable applying for a stocks and shares LISA – particularly those looking to save over the short term, such as first-time buyers. The £250 will be a great incentive for those who get a mortgage with Skipton, which could be really helpful if funds are tight.
“However, there are Help to Buy ISAs available paying rates well above 0.50% and savers can still acquire the government 25% bonus when they buy a home but these won’t be around forever.
“Those savers looking to use a LISA for retirement may be wiser to seek out a stocks and shares version where they could see much higher growth over the longer term.”
Andrew Hagger, personal finance expert at MoneyComms, said that while it was good a cash ISA had been launched, the interest rate was ”pretty paltry” compared to other instant access savings accounts and ISAs.
He said: “The key issue is at the moment there are no other Cash LISA providers so without any competition to worry about The Skipton knows it doesn’t have to offer a generous rate as potential house buyers will still snap up the product purely because of the generous government incentives.
“You can’t blame Skipton for taking this stance but equally it’s frustrating that other providers don’t seem interested in providing this much needed product.
“Perhaps the government needs to take a look at why other banks and building societies are so reluctant to sign up – maybe it’s down to the complexity and cost of setting up and monitoring the accounts so that they are utilised as per government guidelines.”
However, there have been some concerns that Lifetime ISAs will deter young people from saving into their pension.
It is also important to remember that if you choose to take your money out early from the Lifetime ISA and it is not for a deposit you will be charged 25% of the amount withdrawn.
The Help to Buy ISA will continue to be available to new applicants until 30 November 2019, after that you will have to take out a Lifetime ISA.
Kris Brewster, head of products at Skipton Building Society, said: “The Lifetime Cash ISA could make a real difference to a new generation of savers by assisting them in getting a foot on the property ladder. That is why we’re excited to offer a product that will encourage future homeowners to save towards this significant milestone.
“There isn’t a one size fits all approach to saving so it’s important people pause to think about their future and have a range of long-term options in mind – as well as reviewing these plans on a regular basis.”
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