The cash LISA is a sham product

It's deeply concerning that people are using this product to save for their first home and the banks are taking advantage of the LISA rules, which as Martin Lewis himself recently pointed out, are extremely unfair terms to the customer.

Banks have realised that savers who took out the product from inception, are likely to keep saving up to the full amount over a long term. They have deliberately kept interest rates as low as possible (well below inflation) for the product, vs rates for other cash ISA products, bonds and fixed rate savings. This means that customers are losing monetary value. Their only option (other than to forego the losses in withdrawing) is to transfer into a different and often far riskier LISA product.

I still believe the FCA should be looking into these rip-off below base rate bank interest rates.

Comments

  • masonic
    masonic Posts: 22,865
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    edited 6 December 2023 at 7:17AM
    Rates are lower due to the product itself being overly complex and unattractive to providers. But it is possible to improve upon the cash rates on offer by transferring to a S&S LISA and holding a money market fund, in which you'd achieve a rate of about 5%. This is not appreciably riskier than a cash LISA, and a lot less volatile than the house price index. The LISA was a product used primarily to prop up house prices at unaffordable levels and it seems to have been quite successful in contributing to this.
  • jlfrs01
    jlfrs01 Posts: 279
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    Perhaps I'm missing something but doesn't the State gift 25% to LISA account holders year on year? 
  • eskbanker
    eskbanker Posts: 29,918
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    jlfrs01 said:
    Perhaps I'm missing something but doesn't the State gift 25% to LISA account holders year on year? 
    It's a one-off 25% for each contribution rather than annual as such.
  • Albermarle
    Albermarle Posts: 21,166
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    £4000 a year in a normal ISA at 5% interest for 10 years would result in approx £50K

    £4000 a year in a LISA at 3% interest for 10 years would result in approx £57K ( with restrictions on how you could take it )

    Not sure that constitutes a sham.

    Their only option (other than to forego the losses in withdrawing) is to transfer into a different and often far riskier LISA product.

    As long as the time scale was more than 5 years, you would normally better off in the ' far riskier' LISA.
    For longer time scales still, you would almost certainly be better off. In fact over 10 years is would be riskier to stay in the cash ISA than a S&S one.
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