cash isa or lifetime isa?

Phaelok

Hi everyone,

I currently have £16k in a Cash ISA with Moneybox at 4.15% and £16k in a Lifetime ISA (also with Moneybox) paying 2.8%.

I’m mortgage-free and mainly keep the Lifetime ISA for the 25% government bonus (£1k a year when I contribute the full £4k). I also have a good workplace pension.

I’ve got £4k left that I can contribute before the end of the tax year — would you put it into the Cash ISA or the Lifetime ISA in my position?

Thanks in advance.

El_Torro

If you are under 50 years old (I presume you are, since you can pay into a LISA) then a Cash LISA at 2.8% isn't going to do you much good. By the time you're 60 a lot of the LISA will have been eroded by inflation.

If you can transfer your LISA to a Stocks & Shares LISA then this is worth considering. If you can't then i wouldn't bother adding any more to your LISA.

Phaelok

Thank you, El_Torro.

I am 42 years old. I am unsure about the Stocks & Shares LISA simply due to the element of risk involved. I would rather have the money saved secure rather than running of risk of losing it over time.

masonic

https://forums.moneysavingexpert.com/discussion/comment/81895320#Comment_81895320

I think you have this the wrong way around. Keeping it in cash, especially at such a low rate, almost guarantees it losing value over time due to inflation. Whereas you'd have to be incredibly unlucky for a diversified investment to be worth less in real terms 18 years later.

The best place for this money could well be the pension (hopefully that isn't in cash).

dunstonh

I am 42 years old. I am unsure about the Stocks & Shares LISA simply due to the element of risk involved.

At 42 years old and a circa 20-50 year investing time scale (assuming you are not going to spend all your money straight away when you retire), using cash is actually the higher risk option.

Cash has shortfall risk and inflation risk. You are pretty certain to have low returns that typically float at or below inflation. So, pretty much guaranteeing no real terms growth and likely a small real terms loss.

Investments have investment risk but have lower shortfall and inflation risk.

Risk is not on or off. It is a sliding scale. Being at either extreme on risk is usually risky in itself. Being somewhere in the middle is typically the safer option. At the moment, you are a looking at an extreme that is almost certainly going to make you worse off.

Hopefully, you haven't put your pension in cash as well as that will just compound your problems.

Albermarle

OP - Probably a good idea to spend some time improving your knowledge about investing for the long term. It will help with understanding your pension and why other posters are saying you should not be too much cash orientated.

Reading through this forum and the main Investments forum is probably a good place to start. Look for threads from new inexperienced investors, and at the answers.