Have a HTB ISA what should I do with extra savings

What about a LISA?

Corbula wrote: »

I have a help to buy isa with Virgin paying 3%, I've had this for a couple of years now. I pay the £200 a month into this.

I have a cash isa with nationwide, it's the loyalty one which when I opened it in March was paying 1.4%, I don't know if this has changed for me or not. I thought about paying into this but realised I can't while I'm paying in to my help to buy isa unless I moved it to nationwide.

If the rules say you cannot contribute to the Nationwide Cash ISA this tax year then the rules must say that you cannot have opened a Cash ISA with Nationwide last tax year, because you were contributing to the Virgin Help-to-Buy ISA. The rules forbid you from paying into two or more Cash ISAs with different providers in any one tax year. As I understand it, a Help-to-Buy ISA is a special form of Cash ISA so you broke the rules.

Corbula wrote: »

I'm currently trying to save as much as I can towards a house in the next 2-3 years.

Corbula wrote: »

The LISA I looked into but don't like the fact that the money is then locked because unless you are ready to sign for a house how can you be absolutely certain you're going to buy one? If you don't that bit of money is stuck until retirement then.

You seem to be pretty set on buying a house in your OP, but then not so sure in your next. If you're under 40 and your primary financial goal is to buy a first time property, then you really shouldn't be sticking your nose up at the LISA, if anything you should be prioritising this over your HTB ISA for the following reasons:

1) A LISA is classed as it's own type of ISA. Therefore, you are able to also have a cash ISA (in your case the HTB ISA), a stocks and shares ISA and an innovative finance ISA alongside the LISA. Whether you decide to have a stocks and shares LISA or a cash LISA is irrelevant in this context. It does form part of your current £20,000 ISA annual allowance.

2) You can contribute up to £4,000 into a LISA every tax year, which (ignoring the first year) is £1,600 more than you can contribute to a HTB ISA.

3) The government bonus is paid (almost) straight away into the LISA, whereas the HTB ISA is paid on completion. This means you can start earning interest or investment gains (or losses) straight away.

4) A LISA allows you to purchase a property up to the value of £450k anywhere in the country. A HTB ISA only allows you to buy a property up to £250k outside of London and £450k in London.

5) The money is not locked away technically (like it is in a pension), but there is a 25% penalty on withdrawing (which takes into account the bonus, equating to a 6.25% loss assuming no interest).

In your position, I would be contributing to both a LISA up to the maximum of £4,000 and the full amount into the HTB ISA of £200 a month (upon buying a house, you would just close this account with no penalty and pocket the high interest). For the £4,000, you could open a monthly saver (with high interest, e.g. Nationwide 5%), then when it matures, dump the money, interest and any excess into the LISA and then reopen a new monthly saver. This way, your cash is working harder for you. As you express it to be in the next 2-3 years, then I would avoid a stocks and shares LISA and stick with a cash LISA as you don't really want to be gambling your money into the stock market over such a short time period.

Corbula wrote: »

Sorry my post might have not been written clearly. I've been contributing to the HTB ISA for a couple of years which has prevented my from contributing to my Cash ISA with Nationwide. The Nationwide one I've had for many year, it use to be a Building Society one when I was a kid until it got taken over. In March I transferred it from a standard Nationwide to their Loyalty one, I didn't open a new ISA and pay new funds into it, just transferred.

That's good news. AFAIK you can still make contributions into this Nationwide ISA and earn 1.4% interest, but you would have to first transfer your HTB ISA to Nationwide in order to be able to do this (and please check with Nationwide first).

Meanwhile, please don't get fixated on ISAs. I'm too old for a Lifetime ISA so I don't know about those but since you haven't had to pay tax on the first £1000 of your annual savings interest (standard rate taxpayer) then Cash ISAs only benefit the wealthy.

Corbula wrote: »

I'm 28 so that's the reason I'm targeting the next 2-3 years to buy my first house. I do intend to buy one however I just meant on the side of caution, who knows what will happen in the next couple of years. There could be a family tragedy and then left with a house, I could meet someone who already has a house. Unlikely but possible. So it wasn't that I'm unsure it's just you can't be guaranteed unless you are actually about to sign really.

Understandable and sensible. However, as you save into both the HTB and the LISA, you can use the HTB as your emergency fund if necessary as there is no penalty to withdraw (this is what I'm currently doing)

Corbula wrote: »

1) Ok, so I can have a LISA and HTB and pay into both?

Yes, you just can't use both bonuses on the purchase, which is fine as you will use the LISA bonus anyways.

Corbula wrote: »

2) If the LISA is a special kind of ISA, can I not pay into a LISA and my Cash ISA (as I have more in this account)?

You can pay into any of these four ISAs in a tax year:
Lifetime ISA
Cash ISA (including HTB ISA)
S&S ISA
IFISA

Corbula wrote: »

If I opened a LISA and paid in the £4000 over the year, and the £200 a month into the HTB. When you say the £4000 into a monthly saver do you mean an additional £4000? Or do you mean £4000 into a regular saver until the interest is about to expire (drop) then move it all into the LISA? Do you still get the LISA bonus?

What I do is contribute to a monthly saver, then when it reaches it's year maturity i dump the money + interest + excess into the LISA, open a new monthly saver - repeat every year. Meanwhile still contributing £200 per month into the HTB ISA earning (Currently) 3% interest

Hope this makes sense? Let me know if anything still not clear