A building society is launching the UK’s first, cash-only Lifetime ISA (LISA) today. The society is the Skipton Building Society and it will be made available to the under 40s. It has been created with idea in mind of tempting young people to start saving, either for a mortgage deposit on a house, or for their retirement.
Although there will be no fees attached to opening and running their cash LISA, Skipton will only be offering a measly 0.5% per annum in interest.
Strings attached
The LISA is a new savings vehicle dreamed-up by former Chancellor, George Osborn. His idea was to promote interest in saving to buy a house and/or saving for a person’s eventual retirement. As an incentive, a government bonus of 25% on savings up to a maximum of £4,000 is offered.
The punch in the mouth though, is that this bonus will only be payable if the savings are used exclusively, either to purchase a first home, or to be drawn upon after the saver has reached the age of 60.
Some remain unimpressed
Although some might be impressed by the cash-LISA, money expert at MoneyComms, Mr. Andrew Hagger, has intimated that while it is encouraging to see that Skipton Building Society is making a positive contribution toward specific savings targets, it is a rather poor contribution. This comment is made in light of the fact that there are a number of other ISAs that offer instant access, and these offer twice the rate of interest.
The first to bite the bullet
Skipton Building Society is the first of a number of potential cash-LISA providers to actually bite the bullet and launch the new product. When asked, other banks and building societies advised that they had yet to make a decision as to whether or not to follow Skipton’s lead, whereas HSBC (who recently announced that they were launching a robo advisor service) and NatWest, said nothing.
Several of those who did reply, and who said they were that not yet ready, pointed out that it was organising the technology that was holding them back. Apparently launching a cash-LISA product offering requires a significant rehashing of their computer systems, which will take a significant amount of time.
A replacement for the Help-to-Buy ISA
This new type of ISA, although only offered by one provider at this point in time, has been designed to eventually replace the Help-to-Buy ISA; the best of which, in terms of interest rates, currently comes from Barclays, whose rate is 2.5%. However, Help-to-Buy ISAs will only be available up until November 2019, after which the only alternative will be a LISA.
How Help-to-Buy ISAs and Lifetime ISAs compare
Comparisons between the existing Help-to-Buy ISAs and Lifetime ISAs indicate that after a year, and saving up to the maximum of £3,400, savers would receive £75 less in terms of interest than they would by investing in a Lifetime ISA.
What it boils down to is the fact that the Barclays Help-to-Buy ISAs would net savers £77.27 interest, which would then be lifted to £96.01 by the government incentive bonus, whereas they would net only £21.30 from a LISA (including the government bonus). It gets worse.
Even though LISAs allow savers to invest £4,000 per annum, using the new Skipton cask-LISA, savers would only earn £25.06 including the government bonus.
The problem is compounded at the moment by the lack of competition for the new cash-LISA. Because of this, there is no pressure being exerted on Skipton to up their rate.
What are the alternatives?
There are however a wide range of ISAs available, and if you are comfortable with taking a low to medium risk on your savings vehicle, you can get far better interest rates with something like a stocks and shares ISA for example.
Investing in savings plans is something of a minefield for the uninitiated, it is therefore recommended that you should take advice from a top, FCA (Financial Conduct Authority) approved wealth advisor.
