Best Lifetime ISAs

If you're considering saving for the long term but don't know where to start, a Lifetime ISA could be a good option to explore.

Updated: June 13, 2024
Matt Crabtree

Written By

Matt Crabtree

|
Rachel Wait

Edited By

Rachel Wait

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The UK government introduced the Lifetime ISA in 2017 to help first-time buyers get on the property ladder or save for retirement.

In this article, I'll explain the basics of Lifetime ISAs, including how they work, how to open one and who offers them.

ProviderScoreDetails
1. Nutmeg★★★★★Learn more
2. Moneybox★★★★★Learn more
3. Hargreaves Lansdown★★★★★Learn more
4. Paragon Bank ★★★★★Learn more
5. AJ Bell Dodl★★★★★Learn more
6. AJ Bell★★★★Learn more
7. Newcastle Building Society★★★★Learn more
8. Skipton Building Society★★★★Learn more

What You Need to Know About Lifetime ISAs

What is a Lifetime ISA?

A Lifetime ISA is a tax-free savings and investment account designed to help young people save for their first home or retirement. The account allows holders to save up to £4,000 each year and receive a 25% bonus from the government, up to a maximum of £1,000 per year.

Contributions can be made until the age of 50, and you can withdraw funds if you're buying your first home, are aged 60 or over, or are terminally ill, with less than 12 months to live.

Thanks to the government bonus, the Lifetime ISA can be a great way to help save for your retirement, or save to buy your first home.

Once you've reached the age of 50, you can no longer pay into your account or receive the bonus. But your account will stay open and you can still earn interest or investment returns.

Keep in mind that whatever you pay into your Lifetime ISA is included in your overall annual ISA allowance of £20,000.

Who is Eligible?

You must be between the ages of 18 and 39 to be eligible for a Lifetime ISA. Additionally, you must be a UK resident.

If you're using the account to save a deposit for your first home, you can only access the funds if you are buying a property at least 12 months after making your first payment into the account.

The property must cost no more than £450,000 and you must be buying a home you plan to live in — you can't rent it out or use it as a holiday home. In addition, you must use a traditional repayment mortgage on the property and use a conveyancer or solicitor to act for you in the purchase.

If you're using the account to save for retirement, you can only access the funds when you turn 60.

If you access your money before then and you're not using the funds to buy a home, a 25% withdrawal fee will apply.

The Lifetime ISA is an excellent way to plan for the future, but take all of the factors into consideration before choosing one.

Types of ISA

There are two primary types of Lifetime ISAs — Cash Lifetime ISAs and Stocks and Shares Lifetime ISAs — each offering unique features, pros and cons.

Cash Lifetime ISA

A cash Lifetime ISA can be used for saving for a home purchase, as well as for retirement. It pays interest in the same way as a standard savings account and is the low-risk option.

Stocks and Shares Lifetime ISAs

Stocks and Shares Lifetime ISAs are designed for people who want to invest in the stock market with a view to a long-term return. Stocks and shares lifetime ISAs have the potential to give you higher returns compared to a cash Lifetime ISA, but they are also higher risk. In some cases, you could end up losing money.

Which One Should I Choose?

So, which type of Lifetime ISA is right for you? It really depends on your own personal circumstances, such as your appetite for risk, how long you plan to save and when you plan to access the funds.

Cash Lifetime ISAs are typically the safest way to save and a great choice for those who want peace of mind and don’t want to risk their capital.

However, if you’re willing to take on more risk, particularly if you're saving for retirement, a Stocks and Shares Lifetime ISA has the potential to produce greater rewards in the long run.

Whichever type of Lifetime ISA you choose, it is a great way to save for the future. As with any investment, make sure you fully understand the risks involved and always do your research before making a decision.

Our Comparison of ISAs

With so many providers offering different terms, it’s important to explore all the options to ensure you’re getting the best deal.

What You Should Look Out for

1. Rates & Fees

Start by looking at the interest rates and fees each provider charges. For cash Lifetime ISAs, the higher the interest rate, the greater the return on your savings.

If you're choosing a stocks and shares Lifetime ISA, check what fees apply. These can include annual portfolio charges, dealing fees if you buy and sell investments and transfer fees.

2. Customer Service

Customer service is an important factor to consider when choosing a provider. Look for providers that offer quick, helpful customer service and make sure your queries can be answered quickly and easily.

3. Transfers in

It's worth checking whether your provider allows transfers in from other types of ISA (cash, stocks and shares).

Examples & Comparisons

While there's no shortage of ISA providers, it can be hard to identify the right one. To help you make the right decision, here's a comparison of some of the leading Lifetime ISA providers.

Provider
Rate (AER)
Min Deposit
Max Deposit
Access
1. Nutmeg Lifetime ISA
Variable
£100
£4,000
App/Online
2. Moneybox Lifetime ISA
4.40%
£1
£4,000
App/Online
3. Hargreaves Lansdown Lifetime ISA
Up to 3.76%
£25 per month or £100 lump sum
£4,000
Online
4. Paragon Bank Lifetime ISA
3.51%
£1
£4,000
Online
5. AJ Bell Dodl Lifetime ISA
Variable
£25 per month or £100 lump sum
£4,000
Online
6. AJ Bell Lifetime ISA
Variable
£25 per month or £100 lump sum
£4,000
Online
7. Newcastle Building Society Lifetime ISA
3.00%
£1
£4,000
Online/Phone/Post
8. Skipton Building Society Lifetime ISA
3.25%
£1
£4,000
Online

1. Nutmeg Lifetime ISA

Nutmeg is an online investment management platform that offers various investment portfolios, including ISAs, tailored to individual investor needs. It only offers stocks and shares Lifetime ISAs.

Established in 2011, Nutmeg has grown to be one of the largest robo-advisory platforms in the UK, with over £4 billion of assets managed for more than 130,000 customers.

The Nutmeg ISA offers several investment options, each with its own unique features and benefits. Let's take a closer look.

Fixed Allocation Portfolios

For investors seeking a diversified investment approach with limited risk exposure, these portfolios are designed to invest in a combination of asset classes such as equities, bonds, and cash.

Fully Managed Portfolios

Nutmeg's team of investment professionals actively manage these portfolios, making them a good fit for investors seeking a more passive investment strategy where investment decisions are delegated to experienced experts.

Socially Responsible Portfolios

These investment portfolios are designed for individuals who seek to invest in companies that align with their values by focusing on those with robust environmental, social, and governance (ESG) credentials.

Thematic investing

This is a long-term strategy that invests in the growing trends shaping our future. This can include AI, energy generation and the ageing population. Investments are made in companies set to benefit from the development of these trends.

Smart Alpha Portfolios

These portfolios use advanced algorithms and data analysis to identify investment opportunities in global markets. They are suitable for investors who want a more sophisticated investment strategy that leverages the latest in technology and data analysis.

2. Moneybox Lifetime ISA

This Lifetime ISA provider offers a straightforward and intuitive interface, making it simple for users to set up and manage their accounts.

Users can choose from cash or stocks and share Lifetime ISA, and they can set up regular contributions or make one-off deposits as they wish.

Another advantage of Moneybox‘s LISA is that it offers competitive fees. The app charges a monthly subscription fee of £1, as well as a platform fee of 0.45% per year on investments.

This fee structure is lower than many traditional investment platforms, making it a more cost-effective option for investors who are just getting started with saving for their future. You can choose from a cautious, balanced or adventurous approach, depending on how much risk you want to take.

3. Hargreaves Lansdown Lifetime ISA

One Lifetime ISA provider that's always maintained popularity is Hargreaves Lansdown. It only offers stocks and shares Lifetime ISA.

You can apply for your Lifetime ISA on the Hargreaves Lansdown website. You can choose to make a one-off debit card payment of at least £100 and top up whenever you want, or you can set up a direct debit from as little as £25 a month and invest automatically each month.

You can start, stop or lower your direct debit at any time. You can choose from a range of investment options too.

4. Paragon Bank Lifetime ISA

Moving forward, we've got Paragon Bank which is one of the more simple options on this list but also one of the easier ones to manage — it's also on the FTSE 250 if you're interested in that sort of thing.

The bank's been around since the 80s and primarily works as a savings bank, but its Lifetime ISA has only been a thing since fairly recently in 2019.

Once you’ve actually got your Lifetime ISA account up and running with them, you're not just limited to managing it online like a lot of the other ones out there — you can do it over the phone or even via post if you're generally not the most tech-savvy individual.

Lastly, if you're wanting to transfer some of your funds from another Lifetime ISA you might already have, there won't be any sort of extra account fees slapped on at the last minute — all things considered, it might be slightly more basic, but it's all you really need if you're just looking for a simple option that doesn't come with all the extra investment accounts offered by other banks.

5. AJ Bell Dodl Lifetime ISA

Next is a platform that's slightly less accessible in comparison to the previous option since it's only available via an app, not over the phone or anything like that.

Having said that, the sort of features AJ Bell Dodl has to offer are generally way more extensive than Paragon Bank, so it's kind of warranted that you'd only be able to use it by using an app anyway.

It also only requires around £100 to actually get your Lifetime ISA up and running, or if this feels like a bit too much at once, you can make payments of at least £25 on a regular basis instead — just keep in mind that it'll not earn any interest if you just let it sit uninvested in your Dodl account.

So, once you've got your account set up and you actually get on the app, you've around 80 different US and UK based shares you can invest in and 30 funds, too — all ranging in different risk profiles so you don't need to overexpose yourself if you don't want to.

As for the specific fees you'll take on for using this platform, Dodl is generally known for having some of the lowest ones available since they don't actually charge any trading fees and only charge a platform fee of 0.15% on an annual basis — just bare in mind that there are management fees for whatever individual funds you invest in, but these will rarely exceed 0.45% at the most.

6. AJ Bell Lifetime ISA

We haven't just accidentally duplicated the same option here; AJ Bell do, in fact, offer two different Lifetime ISA options so bear with us for a second.

The names can be a little bit confusing if you're not familiar with the distinction, but the main difference here is that the former option we were discussing, AJ Bell Dodl, is far more geared towards investors with relatively little experience when it comes to investing.

The AJ Bell Lifetime ISA, on the other hand, has a far more complex range of investing options that are more suited towards people who know what they're doing.

It doesn't sacrifice the range of features they offer for a high price, though — it actually charges the same platform fee as an earlier option we discussed, Hargreaves London, at only 0.25%, so it's definitely one of the more cost effective options on this list.

While this is still marginally higher than AJ Bell Dodl, it's more than understandable once you consider the 2000+ funds and international stocks you're gaining access to in comparison to Dodl's 30.

Finally, it's worth mentioning that the price per share trade is only £3.50 if you make more than 10 trades in a month — it's £5 if you're less active, though.

7. Newcastle Building Society Lifetime ISA

Next up, we have Newcastle Building Society which — similarly to Paragon Bank and AJ Bell Dodl — also offers a fairly simplified Cash Lifetime ISA that you can open with only £1, making it one of the most affordable options in general — not to mention that it's interest rate is only 3%.

Unlike AJ Bell Dodl, though, you're able to manage this account through a bunch of different avenues, so whether you'd prefer having a phone call, managing it yourself online, or even via the post, you've got the flexibility to handle your account however you like.

8. Skipton Building Society Lifetime ISA

Finally, we've got the Skipton Building Society which does charge slightly higher interest on your Cash Lifetime ISA — at around 3.25% AER (although this is variable) — but similarly to Newcastle Building Society, you can get your account up and running with an investment of just £1.

Furthermore, like a few of the options we've already covered, you'll be able to transfer funds in from any other existing Cash Lifetime ISAs you've already got., which can be opened from £1.

The only major downside of this account is that while providing a very similar service to Newcastle Building Society, you've got way less accessibility options as you not only have to open your account online, but you can't manage it by any other means, either — meaning no phone calls or submissions via the post.

While it definitely still offers a quality service that's very affordable, too, this is one of the main reasons we've got it placed as the final option on this list.

Exploring The Benefits of a Lifetime ISA

Tax-Free Savings

One of the main advantages of the Lifetime ISA is that it allows you to save money in a tax-free account. You don’t have to pay tax on the interest earned in a cash Lifetime ISA or on the returns you receive in an investment Lifetime ISA.

This makes it a great option for those looking to grow their money over the long-term without having to worry about paying taxes on their profits.

Can help you save for a home or retirement

Another great benefit of the Lifetime ISA is that it could help you to save up for a deposit and get on the property ladder faster. Or it could give you a savings pot to help support your retirement.

Cash Bonuses

The UK government provides a generous bonus of 25% (up to £1,000 a year) on your contributions. This bonus can help your savings to grow quicker.

Understanding Your Other Retirement Savings Options

When planning for your retirement, it's worth checking out the various retirement savings options available as well as Lifetime ISAs.

Everyone’s planned retirement goals, and financial situations, are unique, and it is important to choose the option that best reflects your needs.

Savings Accounts

Savings accounts are commonly used for short-term savings goals, such as saving for a holiday, or a deposit on a house. However, they can also be used for longer-term savings goals, such as saving for retirement.

When it comes to retirement savings, savings accounts offer a safe and secure option for individuals who want to build up their nest egg over time. They're a popular choice for those who prefer a low-risk investment option and want to ensure that their savings are protected from market fluctuations.

Choosing a fixed rate savings account lets you lock away a lump sum for a set time, usually between one and five years. Generally, the longer the term, the higher the interest rate. However, potential returns are often lower compared to investing in the stock market over the long term, but it's less risky.

Choosing a cash ISA will mean that you won't pay income tax on any of the interest you earn.

Personal Pension

A personal pension is one that you set up yourself. You can then choose to pay into it as and when you want to. Pensions are tax-free, so when you make a payment into your pension pot, your pension provider will then claim back basic rate tax at 20% from HMRC and this will be added as tax relief.

If you're a higher rate taxpayer, you can claim further tax relief from HMRC, but you will need to do this yourself through a self-assessment tax return. Or contact HMRC if you don't usually complete a tax return.

This can significantly increase the amount of money you save in the long term, as you are essentially investing a larger sum of money upfront.

Workplace Pension

Workplace pensions are a crucial aspect of retirement planning for most UK employees, and they can offer many benefits over other types of retirement savings accounts.

Workplace pensions are set up by your employer. To make contributions, your employer will usually transfer over a portion of your pre-tax salary. This means you automatically receive all the tax relief you're entitled to.

Another advantage of workplace pensions is many employers will also contribute, which can significantly boost your retirement savings. In many cases, employers will match a portion of whatever contributions you make to your pension plan, which effectively doubles your savings rate.

State Pension

The State Pension is a crucial component of retirement planning in the UK. As its name suggests, it is a government-provided benefit that is available to all individuals who have reached State Pension age. 

The State Pension age is currently set at 66 for both men and women. However, this is set to increase in the coming years as the government aims to address the challenges posed by an ageing population. 

This means that younger generations may have to wait longer to receive their State Pension, depending on when they were born.

The amount of State Pension that an individual receives is dependent on a number of factors, including their National Insurance (NI) contributions. The more NI contributions that an individual has made over the course of their working life, the higher their State Pension payments are likely to be.

To be eligible for the new State Pension, you'll likely need at least 35 years of qualifying NI years. To get some of it, you'll need at least 10 years.

Impact of Market Volatility on Lifetime ISAs

Like any investment, the performance of a Lifetime ISA can be affected by market volatility.

In this section of the article, we'll explore the impact of market volatility on Lifetime ISAs and discuss strategies for managing risk during market downturns.

What is Market Volatility?

Market volatility is the tendency of financial markets to fluctuate rapidly and unpredictably.

In general, market volatility is influenced by various factors such as economic conditions, political events, and investor sentiment. Any changes in these factors can cause the value of stocks and other investments to go up or down.

In the trading community, a volatile market can be a double-edged sword. On the one hand, it can create opportunities for investors to buy low and sell high. On the other hand, it can also cause investment losses, especially if investors panic and sell their investments during a downturn.

Strategies for Managing Risk During Market Downturns

A way to mitigate risk is through investment diversification, whereby investors spread their funds across various asset classes, including stocks, bonds, and cash. This approach minimises the influence of any single asset's performance on the overall portfolio.

Diversification can also help manage risk by providing exposure to different markets, sectors, and industries.

Another strategy is to use a “pound-cost averaging” approach. This involves investing a fixed amount of money into a Lifetime ISA at regular intervals, no matter the current market conditions. This often helps investors avoid the temptation to try to time the market, which is notoriously difficult to do successfully.

By investing a fixed amount regularly, the overall price you pay for shares averages out across fluctuations in the share price. This approach can help smooth out market volatility and reduce the impact of short-term fluctuations on the overall investment.

It is also important to have a long-term perspective. Yes, market volatility can be unsettling in the short term, but over the long term, the stock market has historically provided solid returns.

Investors who stay invested through market downturns and focus on their long-term goals are more likely to achieve success with their Lifetime ISAs.

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