Asking for advice - move all savings to LISA or pay off loan?

Soudle_Noop

Hi, I'm looking for some thoughts on organising my savings. I am saving for a house deposit, I have both a Help to Buy ISA and Cash LISA (I realise I can only use the 25% bonus on one account). I have around £2000 in my Help to Buy ISA and £0 in my LISA. I think I will be more likely to use the LISA as I can deposit £4000 per year, whereas the Help to Buy only allows maximum £2400 per year. I have just over £1000 in another savings account. I also have a loan that I am paying off which currently amounts to £1900. I am wondering whether to move part or all of my savings to my LISA before the 30th March so that I can get the bonus for this tax year. I can think of 3 options;

1. Move all savings to LISA, accrue 25% bonus on approx. £3000 for this tax year (assuming they will allow me to deposit this much in the next few days). Continue paying off loan gradually (although I will be able to pay off within the next 6 months if I continue saving as much as I am currently)

2. Move £2000 from Help to Buy ISA to LISA. Use the £1000 from savings plus additional saving over the next few months to pay off loan early.

3. Pay off loan now using savings available (£1000 from savings account and £900 from Help to Buy ISA), and move the rest to LISA

Any thoughts would be much appreciated

WillPS

When are you looking to buy? What's the interest rate on your loan and when will you finish paying it off (without early settlement)?

Soudle_Noop

I am looking to buy as soon as I have a big enough deposit, which will probably take around 3-4 years. My loan interest rate is 3.3%. I think it would take roughly 16-17 months to pay off at the moment (£1944.16, currently paying off £124.41 per month).

jbrassy

If I were you, I would not pay off the loan early. If the interest rate is 3%, and inflation is running and over 6%, in real terms the value of your loan is decreasing. I would continue to make the regular loan payments until it expires as inflation is unlikely to dip below 3% over the next 18 months.

On that basis, I would choose option 1.

WillPS

Agreed - keep the regular loan payments and concentrate everything else in to savings. If you can save more than £2400 next year and you will definitely be purchasing a home then following the LISA strategy makes sense.

If you reckon you can save over £4000 in the next financial year then get as much paid in to that LISA as you can in the next week too, even if it's only £20 extra that's a free fiver you'd otherwise miss out on.

Soudle_Noop

Thanks both that's really helpful 

MrFrugalFever

Assuming this loan is your only interest bearing debt and given the interest rate and amount remaining, I would suggest putting in maximum amount you can this financial year to the LISA to maximise gov bonus as that will outweigh your loan.