Confused by best Lifetime ISA and transfers

firsttimeinmarlow

I've got a Lifetime ISA with Skipton that I've had for 2 years - balance around £10,000. I'm looking to to transfer to get a better rate but I'm quite confused by the transfer offers out there.

Moneybox have the best rate at 5%, but only for a year. Tembo offer 4.3% but a cashback bonus of up to £300, which their post says works out at 5.07%. How!?

Help!

gravel_2

Tembo would give £75 cashback for 10k-15k

75 return on 10,000 is equivalent to an annual return of 0.75%. As it's paid 6 months after your transfer it will also accrue interest at the 4.3% rate for half the year.

Rough maths on 10k...
Basic: 10,000 * 4.3% = 430
Bonus: 75
Interest on bonus: 75*(4.3/2) = 1.61

Total return on £10k is then 506.61, or ~5.07%

Naturally the influence of the cashback on the effective return rate is more impact at the lower end of each band than the higher: https://www.tembomoney.com/savings/lifetime-isa-transfer-bonus

firsttimeinmarlow

Thank you so much for breaking that down @gravel_2

So the rate is better in year 1 - 5.07% vs 5% with Moneybox. Then the next year I'd still be at 4.3% with Tembo vs 4% with Moneybox??

If I've got that right it sounds like Tempo makes sense then while they have this offer on 

firsttimeinmarlow

Tbh I'm kicking myself I stayed on a pretty rubbish rate for so long 

gravel_2

Important to note that the underlying rate can be varied by the providers - both could drop. The bonus payment is guaranteed, interest rates can change for the worse.

Alexland

I am a bit confused about where in the Tembo offer terms they say "Bonus” is in effect “Bonus Interest” so can be paid into the LISA account without impacting the annual limit.

This doesn't seem right as the payment is clearly a tiered fixed value incentive rather than an interest calculation so I would have expected that it would either need to count towards the current year LISA allowance (and even get a 25% government bonus) or need to be paid into a different account.

For comparison when I have seen other providers such as T212, Orbis, Onefamily, etc pay cashback incentives directly into ISA accounts it has always reduced the remaining ISA allowance they show. They tend to be clear in their terms that this is how they are required to operate and that such incentives use ISA allowance.

It seems Tembo are even more casual with ISA rules than T212 who allow fractional shares?

Also from a customer's perspective you probably wouldn't want the cashback paid into the LISA account as 'bonus interest' as it unnecessarily locks it away at risk of early withdrawal penalty for no government bonus.

firsttimeinmarlow

gravel_2 said:

Important to note that the underlying rate can be varied by the providers - both could drop. The bonus payment is guaranteed, interest rates can change for the worse.

I hadn't thought of it like that at all but that is a great point! especially when rates are expected to come down later in the year. 

firsttimeinmarlow

Alexland said:

I am a bit confused about where in the Tembo offer terms they say "Bonus” is in effect “Bonus Interest” so can be paid into the LISA account without impacting the annual limit.

This doesn't seem right as the payment is clearly a tiered fixed value incentive rather than an interest calculation so I would have expected that it would either need to count towards the current year LISA allowance (and even get a 25% government bonus) or need to be paid into a different account.

For comparison when I have seen other providers such as T212, Orbis, Onefamily, etc pay cashback incentives directly into ISA accounts it has always reduced the remaining ISA allowance they show. They tend to be clear in their terms that this is how they are required to operate and that such incentives use ISA allowance.

It seems Tembo are even more casual with ISA rules than T212 who allow fractional shares?

Also from a customer's perspective you probably wouldn't want the cashback paid into the LISA account as 'bonus interest' as it unnecessarily locks it away at risk of early withdrawal penalty for no government bonus.

Hmm I'm not too worried about it being locked away - any interest I would earn with a better rate would be locked away too & there's no way I'm buying above £450k haha. I'll double check with their team that it won't add to my annual limit though as I try to max out each year as you're right -that does sound weird if others don't do it that way

Alexland

I also find the below Tembo table very misleading to suggest that because the higher rate Moneybox drops after 12 months that they should be put in second place in an interest rate chart (although I accept the bonus makes up for the difference that's not mentioned in the graphic).

On a casual glance it might lead the consumer to incorrectly perceive they are both getting the best rate and also getting the cashback bonus mentioned on other parts of the webpage when in truth the difference in return on their products over the next year is negligible.

It could be more clearly summarised as "It doesn't really matter if you go for Tembo or Moneybox and who knows what the rates will be in the future".

The main downside that I recall from the Moneybox LISA is that they had an usually early cut-off on which tax year they would report contributions made in the last few days of the tax year to have occurred which didn't seem to be in the spirit of the ISA guidance of how to date when contributions occurred but I don't know if that's still the case with them.

WillPS

Alexland said:

I also find the below Tembo table very misleading to suggest that because the higher rate Moneybox drops after 12 months that they should be put in second place in an interest rate chart (although I accept the bonus makes up for the difference that's not mentioned in the graphic).

On a casual glance it might lead the consumer to incorrectly perceive they are both getting the best rate and also getting the cashback bonus mentioned on other parts of the webpage when in truth the difference in return on their products over the next year is negligible.

It could be more clearly summarised as "It doesn't really matter if you go for Tembo or Moneybox and who knows what the rates will be in the future".

The main downside that I recall from the Moneybox LISA is that they had an usually early cut-off on which tax year they would report contributions made in the last few days of the tax year to have occurred which didn't seem to be in the spirit of the ISA guidance of how to date when contributions occurred but I don't know if that's still the case with them.

It's based on a 5 year period - which is a bit weird since none of them are even fixed rate, leave alone fixed for 5 years!

Alexland

WillPS said:

It's based on a 5 year period - which is a bit weird since none of them are even fixed rate, leave alone fixed for 5 years!

This kind of sharp marketing would discourage me from doing business with a provider.