Top-rate cash Lifetime Isa launched by Newcastle BS - bringing the total to just three

Published by Stephen Little on 26 October 2018.
Last updated on 31 October 2018

Lifetime Isa market bolstered by OneFamily launch

Newcastle Building Society has launched a cash Lifetime Isa (Lisa) at a market beating rate of 1.1% - making it the third provider to launch this product.

The Lisa was introduced in April of last year and can be opened by anyone aged 18-40. Lisa savers can 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 the age of 60, with a tempting 25% bonus in either scenario.

They are aimed at young 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 (HTB).

The deal from Newcastle beats the ones on offer from Skipton at 1% and the Nottingham Building Society at 1%.

Customers who are interested in opening a Lisa with Newcastle Building Society can open one online with just £1.

While you can’t currently transfer over an existing Isa to get a better rate, Newcastle says that it hope to bring this feature in at some point in the future.

 Stuart Miller, customer director at Newcastle Building Society, says: “Encouraging and rewarding personal saving is an important step in addressing a culture of easy credit and consumer debt that has become prevalent and ultimately reduces the ability of individuals, couples and families to save and plan for their future.”

Is it a good deal?

Despite the fanfare surrounding the launch of Lisas last year, the number taken out has fallen short of government expectations.

According to figures from HMRC, a total of 166,000 Lisas have been set up, way below the 200,000 accounts the government originally expected to be opened.

Choice is also limited, with many of the the big banks and building societies failing to get on board with the scheme.

Rachel Springall, finance expert at Moneyfacts, says: “It’s encouraging to see more providers entering the cash Lifetime Isa market as it has been a bit scarce with competition. Loyal Newcastle Building Society customers could well seek out this new savings deal, so long as they can commit to regular deposits of course.”

First-time buyers looking to use a Lisa to buy their first house would be better off going for a Help to Buy Isa which offers a higher rate of interest.

There a number of Help to Buy Isa rates which beat the 1.1% offered by Newcastle hands down, including Barclays which offers a Help to Buy Isa at 2.55%.

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 hit with a 25% withdraw penalty for the whole amount.

Ms Springall says: “Potential first-time buyers will find that Help to Buy Isas are offering better interest rates, with come with the same 25% government bonus.”

She adds: “Lisas also carry different rules for later life withdrawals so savers best read up on the workings before they invest. At this stage I don’t feel that other providers will compete in the Lisa market as there still hasn’t been much take up, but it could change if the Help to Buy Isas get pulled in the future."

There has been speculation that the government could ditch the Lisa altogether. At the end of July, the Treasury Committee criticised the product as “complex and inconsistent” and called for it to be scrapped.

Hannah Maundrell, editor in chief of money.co.uk, says: "If you’re saving for your first home or retirement it’s a good option to consider as the government gives you a hefty bonus on top of your savings and you earn yearly interest.”

She adds: “However, a Lisa isn’t for everyone and it’s unlikely to be for you unless you’re saving a deposit for a house or retirement as you’ll be charged 25% on additional withdrawals making it a virtually pointless way to save."

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Leave a comment

You say that first time

You say that first time buyers would be better with a Help to Buy ISA, rather than Lifetime ISA, as they offer a higher rate of interest. However, the maximum that can be saved per annum with Help to Buy is £2,400, giving a maximum of £600 from the Government. With Lifetime ISAs going up to £4,000, you could get an additional £1,000 bonus from the Government. That would more than make up for the face-value lower rate of interest with the Lifetime ISA. If you can afford to save £4,000 per annum, LISA is the better product.

Confusing and somwhat

Confusing and somwhat misleading article.
LISA is capped at £450,000 property value whereas Help-to-buy is £250,000 outside London, and £450,000 inside.
The author also neglects to add that you can contribute more to a LISA, meaning it is possible to save more, even with the lower interest rate.
Interest plus the government bonus means you will come away with more money than with a Help-to-buy if you put away the full £4,000 on a LISA.