advice on HTB/LISA for couple

Hi, I'm not confident with these things do seeking advice.

My spouse and I have been putting £200 into the HTB ISA I have had each month, and it currently has 6,000 in. We have considered both opening a lifetime ISA and transferring the money, but don't know what the best option is. We have that 6000 and are able to contribute the 200 a month between us, but contributing 4000 to two LISAs each year isn't feasible, so we couldn't maximise the benefit there.

Is it better to stick to the HTB ISA as it stands? Or should we transfer, or try to use a combination?

Comments

  • masonic
    masonic Posts: 22,835
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    The fact that you aren't able to contribute more to the LISA than the HTB ISA isn't relevant, as the bonus of both schemes is the same. Rather like choosing between equivalent savings accounts based on the maximum permitted balance rather than other factors.
    The relevant factors when choosing between HTB ISA and LISA are: (1) how long it is before you will buy (can you move all of the money across in time, will you buy before the scheme ends); (2) will you be able to meet the scheme rules on the chosen property (might you want to purchase something >£250k outside London); (3) what are the relative interest rates; (4) might you end up with savings above the upper limit for the bonus on the HTB ISA scheme.
  • masonic said:
    The fact that you aren't able to contribute more to the LISA than the HTB ISA isn't relevant, as the bonus of both schemes is the same. Rather like choosing between equivalent savings accounts based on the maximum permitted balance rather than other factors.
    The relevant factors when choosing between HTB ISA and LISA are: (1) how long it is before you will buy (can you move all of the money across in time, will you buy before the scheme ends); (2) will you be able to meet the scheme rules on the chosen property (might you want to purchase something >£250k outside London); (3) what are the relative interest rates; (4) might you end up with savings above the upper limit for the bonus on the HTB ISA scheme.

    I might be getting my maths completely wrong here, but if the bonus in the LISA is paid out annually and as a percentage of that year's contribution, doesn't that mean that the amount will be different from the lump sum bonus offered on withdrawal of the HTB?


  • frogmouth said:
    masonic said:
    The fact that you aren't able to contribute more to the LISA than the HTB ISA isn't relevant, as the bonus of both schemes is the same. Rather like choosing between equivalent savings accounts based on the maximum permitted balance rather than other factors.
    The relevant factors when choosing between HTB ISA and LISA are: (1) how long it is before you will buy (can you move all of the money across in time, will you buy before the scheme ends); (2) will you be able to meet the scheme rules on the chosen property (might you want to purchase something >£250k outside London); (3) what are the relative interest rates; (4) might you end up with savings above the upper limit for the bonus on the HTB ISA scheme.

    I might be getting my maths completely wrong here, but if the bonus in the LISA is paid out annually and as a percentage of that year's contribution, doesn't that mean that the amount will be different from the lump sum bonus offered on withdrawal of the HTB?


    In the LISA the 25% bonus is paid out by the end of the month you make the contribution. In either scenario you receive 25% on top of your contributions so there should be no difference.

    The H2B ISA is limited to £200p/m (max £2,400 per year) with a max bonus of £3,000.
    The LISA is limited to £4,000 per year with no max bonus (25% of whatever you've saved).

    So it'd be worth considering when you think you will buy (if another 2-3 years away the LISA probably wins). The value of the property (if over £250k the LISA probably wins), or if you could realistically save more than £200 then the LISA probably wins. 

    As you're both contributing to one H2B ISA, the switch to the LISA will be quite easy. Both open a LISA, move £3,000 each into it. Contribute a further £400 each to your LISA's. Then from April you have a new £4,000 allowance to start saving. If you only make £1,200 of it (£200 / 2 x 12) then you're no worse off but you've got more freedom within the LISA (including stocks and shares LISA's). If you come into some money (say £8k) then you will also be able to invest it in each of the LISA's to get the 25% bonus ahead of your purchase. 
  • masonic
    masonic Posts: 22,835
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    edited 27 December 2023 at 12:49PM
    frogmouth said:
    masonic said:
    The fact that you aren't able to contribute more to the LISA than the HTB ISA isn't relevant, as the bonus of both schemes is the same. Rather like choosing between equivalent savings accounts based on the maximum permitted balance rather than other factors.
    The relevant factors when choosing between HTB ISA and LISA are: (1) how long it is before you will buy (can you move all of the money across in time, will you buy before the scheme ends); (2) will you be able to meet the scheme rules on the chosen property (might you want to purchase something >£250k outside London); (3) what are the relative interest rates; (4) might you end up with savings above the upper limit for the bonus on the HTB ISA scheme.

    I might be getting my maths completely wrong here, but if the bonus in the LISA is paid out annually and as a percentage of that year's contribution, doesn't that mean that the amount will be different from the lump sum bonus offered on withdrawal of the HTB?
    First of all, the bonus is paid about 1-2 months after each contribution (for a contribution made between 6th month 1 and 5th month 2, the bonus should be paid by the end of month 2). A simple sum to will be helpful for illustration purposes (imagine a £4k contribution with 5% growth due to interest and a 25% bonus):
    (£4,000 + 25%) + 5% = (£4,000 + 5%) + 25%. Both can be rewritten as 4000 x 1.25 x 1.05, so if the bonus is added right at the start or right at the end, it will make little difference. In reality the bonus isn't added right at the start for a LISA, so you'd get 20% less interest for a few weeks, perhaps costing you £2-£4 for each £4,000 contribution, so you could treat the total benefit derived from the LISA bonus as being 24.93% rather than 25% in practice. This is going to be negligible in comparison with differences in interest rate that will exist between the two products, which will almost certainly add up to much more than that over the years you hold the product.
  • When are you thinking of buying? What value of house are you likely to be looking at? How much could you afford to put away/month? Those will be the main determinants re whether a HTB or LISA will be better. 
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