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  • FIRST POST
    • 01204mgp
    • By 01204mgp 12th Jul 18, 6:34 PM
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    01204mgp
    Is a LISA bad option for savings?
    • #1
    • 12th Jul 18, 6:34 PM
    Is a LISA bad option for savings? 12th Jul 18 at 6:34 PM
    My wife opened a Lifetime ISA in July 2017, and she was age 34. She put the full amount of 4000 in for the first year. She has no intention of buying a house in the future, just for savings. She will not be able to access for 26 years, until she is age 60. So based on the 1000 bonus. for this first amount this works out at 38 interest for each year over 26 years.

    A basic savings account at 1.3% over 12 months, would give 50 per year interest.
    and could even get as much as 100 per year for a 5 year bond.

    Of course in the following years, the yearly amount increases as she is waiting less time until she is 60. by the time she is 49, if she was to put in another 4000, & get another 1000 bonus, she would only be waiting 10 years, so would work out at 100 per year over 10 years.

    That doesn't seem like a very good investment now when compared to other options? She is not sure now whether to keep it or cancel and incur a 250 cancellation fee. (25% of 5000). Is it worth adding more into in the early years or waiting until she is in her mid 40's. and in the mean time, is she better off putting money into pensions or other savings? It all seems like not a very good deal when you do the Math. sounds amazing at first, get 25% bonus for nothing but is it all that good if you just want it for savings?

    The account also has a 0.75% interest rate, so this would add more each year.

    Total overall interest rate would be approx 1.65% (0.9% + 0.75%). There are still some savings account better than this.

    But unlike a savings account, there is no access for 26 years. If she did need access to it, then a 25% cancellation fee would be alot if there is several thousand in the account.
Page 1
    • masonic
    • By masonic 12th Jul 18, 6:55 PM
    • 9,824 Posts
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    masonic
    • #2
    • 12th Jul 18, 6:55 PM
    • #2
    • 12th Jul 18, 6:55 PM
    In answer to your question, no, I don't think it is a good option for savings. But it can be a fairly good option for investments. For a lot of people, investing in a pension beats investing in a LISA because they can get even more tax relief and/or employer contributions. But a LISA gives you the equivalent of basic rate tax relief and can all be withdrawn tax free at retirement (unlike a pension).

    To comment further on pension vs. LISA, you'd need to provide more details of your wife's income, available pension options and likely income in retirement.

    But the key message is LISAs not used for buying property are much better off used for investment. On the whole you can buy the same investment funds with exactly the same returns as you could in a S&S ISA.
    Last edited by masonic; 12-07-2018 at 6:58 PM.
    • mije1983
    • By mije1983 12th Jul 18, 7:00 PM
    • 3,544 Posts
    • 20,266 Thanks
    mije1983
    • #3
    • 12th Jul 18, 7:00 PM
    • #3
    • 12th Jul 18, 7:00 PM
    A LISA is not designed for general savings, more for FTBs or for retirement. So no, it's not a good option for general savings, as that isn't the intention of it. It's like buying a sports car and then complaining it won't fit your family of 6 in it. It's not designed for that.

    However, you get the 25% bonus on whatever you pay in during that tax year. So at the current maximums, you could pay in 4000 a year and get an extra 1000 added on top every year. You won't find (m)any investment's that gives you that return. But if she is not prepared to lock it away, then that's no good for her due to the penalties that are applied for withdrawals.

    As to whether it is better to put the money into a pension depends on her circumstances. Is she working? What's her income? Is she part of a workplace pension? What are her/her employers contributions? etc
    Last edited by mije1983; 12-07-2018 at 7:03 PM.

    • tacpot12
    • By tacpot12 12th Jul 18, 7:03 PM
    • 1,372 Posts
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    tacpot12
    • #4
    • 12th Jul 18, 7:03 PM
    • #4
    • 12th Jul 18, 7:03 PM
    I would agree that a cash LISA is a bad option of general saving. Why did she open such an account given that all the information was available to her? If she was mis-sold the account, then she might be able to get her losses refunded if she closes the account.

    If she wasn't missold it she has four choices:
    1) Keep the account open but put nothing more into it.
    2) Keep the account open and continue to save into the account to get the government bonuses.
    3) Transfer the account to a Stocks and Shares LISA. This should outperform the Cash LISA by some margin
    4) Close the account and loose 250.

    I think option 4 might be the best option here, but it really depends on what she needs to save for.
    • Zorillo
    • By Zorillo 12th Jul 18, 8:00 PM
    • 357 Posts
    • 216 Thanks
    Zorillo
    • #5
    • 12th Jul 18, 8:00 PM
    • #5
    • 12th Jul 18, 8:00 PM
    She could invest the 5000 until such a time it has grown to a value that means she'd get her whole 5000 back (or more) even allowing for the 25% deduction.

    By which time you might find she likes having it invested within the LISA.

    But if she wants it for accessible savings, I'd forget it.

    Mine is intended for retirement, but with the knowledge that if I really, really need it I can get to it earlier. If I was to withdraw it right now, I'd get back 5 more than I initially contributed due to the investment growth on top of the bonus.
    Last edited by Zorillo; 12-07-2018 at 8:35 PM.
    • kidmugsy
    • By kidmugsy 12th Jul 18, 9:41 PM
    • 11,586 Posts
    • 8,104 Thanks
    kidmugsy
    • #6
    • 12th Jul 18, 9:41 PM
    • #6
    • 12th Jul 18, 9:41 PM
    If she was mis-sold the account
    Originally posted by tacpot12
    "Mis-sold"? Mis-bought is probably statistically likelier.
    Free the dunston one next time too.
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