DO I LOCK SAVINGS INTO LIFETIME ISA NOW OR ANY BETTER INTEREST RATES

NurseMoneySaver1122

So I currently have a Lifetime ISA with Moneybox, which is due to drop its rate from 0.75% to 0.6% (partner can't have one as not 1st time buyer). So I was considering a transfer into Nottingham L-ISA which has a (albeit variable) rate of 1.05% - so can, and most probably will also be dropped soon enough!

Historically, we have always saved our money throughout the year in the highest (easy access) savings account available at the time, until just before the deadline (end of tax year), then transferred the maximum £4000 into the L-ISA from the savings account. This is because the interest rate in L-ISA's has historically been poor in comparison to savings accounts, so we were maximising interest throughout year before having to lock it into the L-ISA and get the government bonus.

However, this seems to have changed, unless I'm wrong?!?

We had recently opened the NS&I savings account M.Lewis spoke of, but as he recently shared, this is due to change to 0.01% (from 1.16%) on 24th Nov.  
And our TSB Plus account, which had an interest rate of 1.50% is going to be reduced to 0% from 2nd Dec!

So if we transfer our L-ISA to Nottingham bank, we would actually be better off putting £4000 of our savings (currently in accounts mentioned above) into the L-ISA now, rather the at the end of the tax year as previously done - or if not right now, then in Nov/Dec when the aforementioned accounts interest rates get reduced. Am I right, or is there something I'm not considering?

Any advice would be greatly appreciated! Many thanks

Albermarle

NS&I income bonds are not the only place for easy access savings .
https://moneyfacts.co.uk/savings-accounts/easy-access-savings-accounts/

verybigchris

Don't forget that the sooner the money hits your LISA, the sooner your 25% bonus starts earning interest.

NurseMoneySaver1122

Albermarle said:

NS&I income bonds are not the only place for easy access savings .
https://moneyfacts.co.uk/savings-accounts/easy-access-savings-accounts/

Just had a quick look; none of them appear to be a higher rate than Nottinghams 1.05% L-ISA rate; so I would still surely be better putting my money straight into there, earning (slightly) higher interest rate, and in turn also earning interest on the 25% government bonus too (as verybigchris states above), no?

NurseMoneySaver1122

verybigchris said:

Don't forget that the sooner the money hits your LISA, the sooner your 25% bonus starts earning interest.

Stupidly hadn't considered that!
Poses another question; if considering the 25% government bonus on the max £4000 deposit, what interest rate elsewhere would beat the interest you'd earn by putting it into the L-ISA, instead of a savings account elsewhere until the end of the year?
Not even sure I've made sense with hat question- hope you know what I mean?!?

bowlhead99

NurseMoneySaver1122 said:

verybigchris said:

Don't forget that the sooner the money hits your LISA, the sooner your 25% bonus starts earning interest.

Stupidly hadn't considered that!
Poses another question; if considering the 25% government bonus on the max £4000 deposit, what interest rate elsewhere would beat the interest you'd earn by putting it into the L-ISA, instead of a savings account elsewhere until the end of the year?
Not even sure I've made sense with hat question- hope you know what I mean?!?

If we assume the LISA bonus arrives 'about a month' after the cash you subscribe into the account, and there are 'about 6 months' left of the tax year, then the money in the LISA will earn the LISA AER on your subscribed amount for one out of the six months, and then 1.25x the AER on your subscribed amount for the other five out of six months.  So the average effective interest rate is roughly ((1 x AER) + (5 x AER x 1.25))/6.    Which with roundings you could simplify to about AER x 1.21. 

As a simple example if you put your money in a JISA paying 1% AER tomorrow, the effective return would need to be a bit over 1.2% if it was in a non JISA account.  If you were earning enough interest this tax year to need to pay tax on your interest income, you would need an even higher rate if it was a non JISA, non ISA account, depending on your personal tax rate.

The reason it is only about 1.2x rather than 1.25x the headline JISA AER in that example is that for some proportion of the period (in this case, 1/6th of the time) the account doesn't have the LISA bonus in it so you are only earning interest on your subscription rather than both the subscription and the bonus. 

The effect of that would be reduced if we had a whole tax year stretching ahead of us, when you would get the AER for 1 month and then the AER x 1.25 for 11 months; that's closer to 1.23 x AER as an average, as the 'waiting for bonus to arrive' time is only half as much, relative to doing it when there's only half a year left.

In practice, the bonus may take longer than a month to arrive as the ISA manager looks at what was received in the account over the course of the month, and only makes a claim to HMRC at the end of it, and then you have to wait for the bonus to arrive after HMRC have paid it.