Lifetime ISA: is 25% bonus a compound bonus?

PingPongSet · 13 January 2019 at 7:33PM

I want to understand if 25% bonus is a compound bonus?

For example:
1 If you save the full £4,000 in 2018, you'll have £5,000, then
2 If you save another £4,000 in 2019, would you get 25% on £8,000 (2018+2019), or just 2019?

Please refer to: moneysavingexpert.com/savings/lifetime-isas/#ntk-2

Alexland · 13 January 2019 at 7:36PM

No you just get 25% on what you have contributed each tax year so max bonus £1k pa.

Mr.Saver · 13 January 2019 at 8:32PM

No, as Alexland said. However the interest on the 25% bonus is compound interest.

For example, if the LISA has 1% interest:
On year 1, you put in £4k, and get bonus £1k, at the end of the year you'll get 1% on the whole £5k which is £50
On year 2, you start from £5,050 from last year, if you put in £4k more at the beginning of the year, and get bonus £1k, you will have £10,050 in your account, and at the end of the year, you'll get 1% on £10,050, which is £100.5
On year 3, if you do the same again, you will get 1% on £15,150.5, which is £151.505

londoninvestor · 13 January 2019 at 9:19PM

PingPongSet wrote: »

I want to understand if 25% bonus is a compound bonus?

For example:
1 If you save the full £4,000 in 2018, you'll have £5,000, then
2 If you save another £4,000 in 2019, would you get 25% on £8,000 (2018+2019), or just 2019?

Please refer to: moneysavingexpert.com/savings/lifetime-isas/#ntk-2

That would be pretty great.

Starting at age 20, putting in £4,000 per year for 40 years, and getting the compound bonus, then even at 0% interest you'd have £120m to retire on at the age of 60.

Of course, taxes might have to rise a bit to fund it!

Lifetime ISA: is 25% bonus a compound bonus?

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