Help to buy isa or lisa

omaze

Hi. My son will be 23 at the end of this year. He has a help to buy isa with only £72 in it . Hehas other saving accounts and an isa. He will probably be looking to purchase a home before 2030 (i think deadline for help to buy?) I really don't understand them at all. Can he put the full amount of £12,000 into his before he buys,  so he gets the maximum £3000 or does it have to have been building up. Or would he be better transferring to a Lisa, just for the purpose of buying then would he close the account? 

gravel_2

LISA if you are satisfied with the house value cap that currently applies to it. H2B ISA is dead and with only £72 in there's really no benefit retaining that product. 

With a LISA you can't purchase for 12 months, so the sooner it's opened the sooner it's available.

£12k cap is an H2B thing only. With LISA you can put in £4k per year with no cap. If you son buys a house in 2030 in theory he could have put £20k into a LISA by then and received £5k bonus from the Gov.

omaze

Would you know? if say he opened a lisa and used it for the purchase of a house would he then be able to close it? Am I right in thinking that the interest rate needs to be high so he can have that paid monthly? It's really just the best way to do it now or if allowed just stick the £12,000 (if allowed) in one go actually scrap that I've got it wrong haven't I he would have had to have been paying it in every year . Would he transfer the help to buy to the lisa?

Ch1ll1Phlakes

omaze said:

Hi. My son will be 23 at the end of this year. He has a help to buy isa with only £72 in it . Hehas other saving accounts and an isa. He will probably be looking to purchase a home before 2030 (i think deadline for help to buy?) I really don't understand them at all. Can he put the full amount of £12,000 into his before he buys,  so he gets the maximum £3000 or does it have to have been building up. Or would he be better transferring to a Lisa, just for the purpose of buying then would he close the account? 

I've provided the link to the MSE pages for the H2B ISA and LISA respectively as reading these will help you and your son understand them better.
Help to Buy ISAs: best rates and deadlines - MoneySavingExpert
Lifetime ISA (LISA): how they work & best buys

Put simply H2B allows up to £200 per month in deposits (i.e max £2400 in a year) whereas LISAs allow up to £4000 per year (this can be in one go or in smaller amounts. With so little in his H2B ISA he would probably be better looking to use a LISA for a house purchase, as even if he saves for the last four months this year and then every month in 2026 to 2029 (52 months total) he would only have £10,400 (plus the £72 and any interest accrued).

As noted above by using a LISA he could have £20,000 saved by 6th April 2029 (start of 29/30 tax-year) however I'll mention the key downside to LISAs is that he would be unable to withdraw any of his funds without paying a 25% withdrawal fee (i.e. he would get back less than he put it even after the bonus is paid out).

omaze said:

Would you know? if say he opened a lisa and used it for the purchase of a house would he then be able to close it? Am I right in thinking that the interest rate needs to be high so he can have that paid monthly? It's really just the best way to do it now or if allowed just stick the £12,000 (if allowed) in one go actually scrap that I've got it wrong haven't I he would have had to have been paying it in every year . Would he transfer the help to buy to the lisa?

Yes he could close the LISA after a house purchase that is fine as their would be no funds in the account and therefore no withdrawal penalty. He can also transfer his H2B ISA into the LISA though for £72 it's probably not worth the effort.

Interest rates on both products aren't discussed much as the bonus is the key point and trumps all other savings. If interest is key for you or your son I'll not a few things.

1) You can't open a H2B ISA now so interest rates are poor due to lack of demand and the limited ability to transfer somewhere else.
2) LISA interest is competitive at the moment with a few accounts paying monthly interest over 4%.
3) Any interest which is withdrawn also pays the withdrawal 25%, i.e. if the LISA earned £200 in interest and you requested this to be withdrawn you'd only receive £150.

Hope this helps if you've any other questions let us know.

omaze

So he would close the H2B because i don't think he can keep it if he has the LISA or transfer then put in £3928. He has savings which he would use £4000 for each year to put in LISA.He thought he could withdraw the interest monthly so thanks very much for letting us know there would be a charge on that too. Also think the H2B has tobe used by 2030? don't think there's a time limit on the LISA for purchasing. Quite scary locking it away but as I explained it's effectively like 25% interest plus about another 4% interest which he'dnever get!! 

Ch1ll1Phlakes

omaze said:

So he would close the H2B because i don't think he can keep it if he has the LISA or transfer then put in £3928. He has savings which he would use £4000 for each year to put in LISA. He thought he could withdraw the interest monthly so thanks very much for letting us know there would be a charge on that too. Also think the H2B has to be used by 2030? don't think there's a time limit on the LISA for purchasing. Quite scary locking it away but as I explained it's effectively like 25% interest plus about another 4% interest which he'd never get!! 

He could close the H2B yes but he can keep both. The rule is that you can't USE both for a house purchase (as you can only use one at a time and a first time purchase only happens once).

And yes H2B has an end date of 2030. While the LISA doesn't have one as yet it probably will also have an end date in future as a future government will probably kill it off or replace it.

On that note though, changes to the withdrawal penalty (which is scary) are being considered. The main suggestion is them being lowered to 20% so you'd get back what you put in (i.e. £100 +25% bonus = £125 then withdrawal is £125 -20% = £100) though again the withdrawal penalty would still apply to interest. But the effective 25% interest is the pay off for limited to no access to interest in the account.

clairec666

Ch1ll1Phlakes said:

Interest rates on both products aren't discussed much as the bonus is the key point and trumps all other savings. If interest is key for you or your son I'll not a few things.

1) You can't open a H2B ISA now so interest rates are poor due to lack of demand and the limited ability to transfer somewhere else.
2) LISA interest is competitive at the moment with a few accounts paying monthly interest over 4%.
3) Any interest which is withdrawn also pays the withdrawal 25%, i.e. if the LISA earned £200 in interest and you requested this to be withdrawn you'd only receive £150.

I'm struggling to find many decent rates - only three of them over 4%, and two of them have bonuses which drop after a year. Have you managed to find some which I've missed?

Ch1ll1Phlakes

clairec666 said:

Ch1ll1Phlakes said:

Interest rates on both products aren't discussed much as the bonus is the key point and trumps all other savings. If interest is key for you or your son I'll not a few things.

1) You can't open a H2B ISA now so interest rates are poor due to lack of demand and the limited ability to transfer somewhere else.
2) LISA interest is competitive at the moment with a few accounts paying monthly interest over 4%.
3) Any interest which is withdrawn also pays the withdrawal 25%, i.e. if the LISA earned £200 in interest and you requested this to be withdrawn you'd only receive £150.

I'm struggling to find many decent rates - only three of them over 4%, and two of them have bonuses which drop after a year. Have you managed to find some which I've missed?

I say competitive (with respective to the rest of the savings market) as over 4% is pretty much where all savings are currently sitting. Looking at the MSE pages (and moneyfacts) the top easy-access and fixed rate accounts for both normal and ISA savings are around this level so arguably putting funds into a LISA at the moment will not cause any lost interest they could have got somewhere else. Even for the top LISA rates of 4.6% with Plum and 4.55% with Moneybox these rates should be competitive at least until their respective bonuses end.

On the point of one year bonuses, with many predicting rates to fall over the coming months many savings accounts will have lower rates this time next year. Fixed rates are predicted to act similarly so a LISA even for the next year should be relatively competitive. The only real accounts that outperform other savings at the moment are regular savings which are not really that suitable for saving for a house purchase.

Thanks for raising this point but hopefully the key thing for the OP and her son is that the 25% bonus on LISA savings will outstrip any other savings method for a house purchase irrespective of interest.

clairec666

Ch1ll1Phlakes said:

clairec666 said:

Ch1ll1Phlakes said:

Interest rates on both products aren't discussed much as the bonus is the key point and trumps all other savings. If interest is key for you or your son I'll not a few things.

1) You can't open a H2B ISA now so interest rates are poor due to lack of demand and the limited ability to transfer somewhere else.
2) LISA interest is competitive at the moment with a few accounts paying monthly interest over 4%.
3) Any interest which is withdrawn also pays the withdrawal 25%, i.e. if the LISA earned £200 in interest and you requested this to be withdrawn you'd only receive £150.

I'm struggling to find many decent rates - only three of them over 4%, and two of them have bonuses which drop after a year. Have you managed to find some which I've missed?

I say competitive (with respective to the rest of the savings market) as over 4% is pretty much where all savings are currently sitting. Looking at the MSE pages (and moneyfacts) the top easy-access and fixed rate accounts for both normal and ISA savings are around this level so arguably putting funds into a LISA at the moment will not cause any lost interest they could have got somewhere else. Even for the top LISA rates of 4.6% with Plum and 4.55% with Moneybox these rates should be competitive at least until their respective bonuses end.

On the point of one year bonuses, with many predicting rates to fall over the coming months many savings accounts will have lower rates this time next year. Fixed rates are predicted to act similarly so a LISA even for the next year should be relatively competitive. The only real accounts that outperform other savings at the moment are regular savings which are not really that suitable for saving for a house purchase.

Thanks for raising this point but hopefully the key thing for the OP and her son is that the 25% bonus on LISA savings will outstrip any other savings method for a house purchase irrespective of interest.

Thanks. I'm avoiding Plum and Moneybox despite the high rate, because a) I expect their underlying rate (i.e. without bonus) to fall if others fall, and b) as I'm approaching 40 I'm limited on options to transfer out. So that left me with Tembo, who so far have been okay.

I see your point about rates being similar to normal ISAs, but although the top LISAs are offering similar rates, there isn't the same amount of choice. Tembo advertise themselves as the highest rate without a bonus, but in reality they could drop their rate by at least 0.4% and still come out on top. And given that they just slashed their easy access ISA rate by a huge amount, I don't really trust them to keep their LISA rate too high. Without many competitors, they haven't got much of an incentive to offer over 4%. I'd like to see more providers come along in the hope that they will keep rates higher in order to attract customers.

Ch1ll1Phlakes

clairec666 said:

Ch1ll1Phlakes said:

clairec666 said:

Ch1ll1Phlakes said:

Interest rates on both products aren't discussed much as the bonus is the key point and trumps all other savings. If interest is key for you or your son I'll not a few things.

1) You can't open a H2B ISA now so interest rates are poor due to lack of demand and the limited ability to transfer somewhere else.
2) LISA interest is competitive at the moment with a few accounts paying monthly interest over 4%.
3) Any interest which is withdrawn also pays the withdrawal 25%, i.e. if the LISA earned £200 in interest and you requested this to be withdrawn you'd only receive £150.

I'm struggling to find many decent rates - only three of them over 4%, and two of them have bonuses which drop after a year. Have you managed to find some which I've missed?

I say competitive (with respective to the rest of the savings market) as over 4% is pretty much where all savings are currently sitting. Looking at the MSE pages (and moneyfacts) the top easy-access and fixed rate accounts for both normal and ISA savings are around this level so arguably putting funds into a LISA at the moment will not cause any lost interest they could have got somewhere else. Even for the top LISA rates of 4.6% with Plum and 4.55% with Moneybox these rates should be competitive at least until their respective bonuses end.

On the point of one year bonuses, with many predicting rates to fall over the coming months many savings accounts will have lower rates this time next year. Fixed rates are predicted to act similarly so a LISA even for the next year should be relatively competitive. The only real accounts that outperform other savings at the moment are regular savings which are not really that suitable for saving for a house purchase.

Thanks for raising this point but hopefully the key thing for the OP and her son is that the 25% bonus on LISA savings will outstrip any other savings method for a house purchase irrespective of interest.

Thanks. I'm avoiding Plum and Moneybox despite the high rate, because a) I expect their underlying rate (i.e. without bonus) to fall if others fall, and b) as I'm approaching 40 I'm limited on options to transfer out. So that left me with Tembo, who so far have been okay.

I see your point about rates being similar to normal ISAs, but although the top LISAs are offering similar rates, there isn't the same amount of choice. Tembo advertise themselves as the highest rate without a bonus, but in reality they could drop their rate by at least 0.4% and still come out on top. And given that they just slashed their easy access ISA rate by a huge amount, I don't really trust them to keep their LISA rate too high. Without many competitors, they haven't got much of an incentive to offer over 4%. I'd like to see more providers come along in the hope that they will keep rates higher in order to attract customers.

Yes that's perfectly understandable. I think giving the OP's situation they will have more flexibility and choice than you will have. If I'm remembering correctly, it's been discussed on the forum before but there is limited providers for LISAs for a handful of reasons including
1. They're more complex than a normal ISA with reporting rules and the withdrawal penalty to deal with
2. They are age-restricted (i.e could be seen as age discrimination)

omaze

Mysonhas worked really hard andhas savings in atom fixed rateand an isa.Initially someone on holiday said "you should have a lisa" Which is why we have nowlooked in to it, and causing me a headache. I thought of doing the Plum one thinking stupidly he could have the interest monthly paid into his account like he does with his other accounts and the 4.60% is good at the moment the bonus is the 25%@ £1000 a year.Realistically the governmentwouldbe giving £3000 if his plan to buy in 3 years.So is the interest married with the governments too at the time of purchase? sorry to be dim. The government are quite scary at the moment as well moving goal posts etc..and it worries me how you have to be so careful at the time of purchase with solicitors releasing at the right time.But £3000 is a big help towards the feesotherwiseI honestly wouldn't bother. I'm 61 should be retired but have to wait till 67shafted by the government so angry..