Skipton Building Society will be the first provider to offer a cash Lifetime Isa (Lisa), although it will pay just 0.5% to savers.
The provider will launch its Lisa at 9am on Thursday 8 June and will become the first provider to offer the cash version of the product.
Until this point only stocks and shares version of the Lifetime Isa had been available, from providers including Hargreaves Lansdown, Nutmeg and The Share Centre.
With its cash Lifetime Isa, Skipton is also offering a bonus £250 cashback to people who use the product and then go on to take out a mortgage with the society.
Savers also will be able to split their £20,000 across multiple Skipton savings products. For instance, those maxing out the annual £4,000 Lifetime Isa allowance will be able to save the remaining £16,000 in other Skipton Isa products.
How does the interest rate compare?
This product pays just 0.5% interest which means you can earn much more interest in a standard Cash Isa, although remember this will not have any government bonus added.
The top easy access Cash Isa comes from the AA. It pays 1.01%, but this includes a 0.76% bonus which will end after a year. The top Help to Buy Isa comes from Barclays, offering an interest rate of 2.27%.
Andrew Hagger of Moneycomms says: “0.5% is pretty paltry particularly when there are already a handful of instant access savings accounts and Isas paying more than double that rate.
“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.”
How does the Lifetime Isa work?
The Lisa is designed to help first-time buyers and people starting to save for retirement. This means you can only open one if you are between 18 and 39 years old.
You may pay up to £4,000 into a Lisa each year until age 50, either in cash or to invest. Whatever you pay in will be topped up with a 25% bonus from the government, up to a maximum of £1,000. Any earnings will be tax free.
This is a product designed to help first-time buyers and those saving for retirement. For those buying a home the property must be valued at less than £450,000 and you must have had your Lisa open for at least 12 months. You are able to transfer your existing Help to Buy Isa into a Lisa, but at the moment rates are much higher for Help to Buy Isas – so think carefully before doing so.
If you’re saving for retirement bear in mind you can’t access the cash until you’re 60 – unless you pay a hefty penalty.
Find full details by reading the Moneywise guide to Lifetime Isas.