25% Bonus on Savings?
From April 2017, there will be a new family member in the ISA family: the lifetime ISA. Quick reminder: an ISA (aka Individual Saving Account) is a tax-free way of saving and investing money.
There are many types of ISA accounts available (cash ISA, stocks and shares ISA, help-to-buy ISA, junior ISA, innovative finance ISA, lifetime ISA) and they all have slightly different specificities.
The Lifetime ISA has been launched to push savers beef up their savings towards a deposit for a first home or for retirement. The Government will basically pay you a 25% bonus (up to £1,000) for £4,000 saved a year and this over 32 years potentially.
How does the Lifetime ISA work?
- You are between 18 and 40
- Accounts will be available from April 2017
- No maximum monthly contribution: save as little or as much as you want each month, up to £4,000 a year
- Any savings you put into it before your 50th birthday will receive an added 25% bonus from the government
- Basically you save up to £4,000 each year, and receive a government bonus of 25% – that’s a bonus of up to £1,000 a year! Over 32 years, with maximum contributions, you will end up with a bonus of £32,000!
- The total amount you can save each year into all ISAs will also be increased from £15,240 to £20,000 from April 2017
What can I use it for?
You have 2 options to use the money on your lifetime ISA according to the gov.co.uk website:
- Save for a first home: your savings and the bonus can be used towards a deposit on a first home worth up to £450,000 across the country (note that accounts are limited to one per person rather than one per home)
- So two first time buyers can both receive a bonus when buying together if you have a Help to Buy: ISA you can transfer those savings into the Lifetime ISA in 2017, or continue saving into both – but you will only be able to use the bonus from one to buy a house
- Save for retirement: after your 60th birthday, you can take out all the savings tax-free
- You could also withdraw the money at any time before you turn 60, but you will lose the government bonus (and any interest or growth on this) and will have to pay a 5% charge.
You can also check this great video from the Financial Times money section with Claer Barrett!
Credit Photo: Unsplash - Ian Schneider