Many people are running to open a Help to buy ISA in light of the news that the deadline for opening this type of account will end on November 30th 2019, but should they or is there a better alternative? In this guide we look at the pros and cons of both the Help to Buy ISA and the new Lifetime ISA. By the end of this post we hope you will be in good position to decide which one is best suited to your position. Of course, this post is not financial advise and thus you may want to consider speaking a regulated financial adviser your service provider before making a final decision.
As a way of introduction, let's look at what these two products are. In basic terms both the help to buy ISA and the Lifetime ISA are a type of savings account that allows individuals to save and deposit a certain amount. This amount is then complimented by an additional 25% government bonus, yup that's right, free money.
So what are the differences between the two accounts?
Below I have put together a table illustrating the different characteristics of each financial product.
Ok let us get straight to the point, when is it a no brainier to use the help to buy ISA instead lifetime ISA (LISA).
Well, if you have not opened either account already, but you plan to buy your first home within 12 months then this is the product for you. The reason for this is that the lifetime ISA has to be opened for at least 1 year before you can use it. Also, If you are under 18 but over 16, or you are 40 and above then you can only use the Help to buy ISA. This is because there is age discrimination on the lifetime ISA (have to be between 18 and 39).Lastly, If you are unsure, whether you actually want to use your savings to buy your first home, then again, the Help to buy ISA is a better product for you because there are no exit penalties.
Right, lets look at it from the other perspective. When should I use the Lifetime ISA and not the help to buy ISA?
Well you probably only want to continue reading this part if you above 18 years of age and below 40. But if you do meet this criteria then you should really be considering the LISA, unless you are 100% that you want to buy your property soon..It has higher deposit limit, less restrictions as to the value of the house it can be used for, regardless of where it is in the UK and you can generate high returns on your money by investing in the stock market if you choose to do so. Of course, that does come with risk. It can also be used as another vehicle to save towards your pension as you can take everything out TAX FREE at the age of 60. The main down side for me is the fact that you are penalised if you try to withdraw for any other reason apart from buying your home or at 60 and if you cannot wait for over 1 year.
If you already have the help to buy ISA and want to take the new advantages of the lifetime ISA, consider doing a transfer.
Consider putting just £1 into your LISA to get the clock ticking for that 1-year period even if you already have a help to buy ISA and think you may want to buy in a year. If you do end up buying and using the help to buy ISA, then you lose £1 on your LISA. However, if you do not, then you can actually do a transfer and not have to wait a whole year again.
If you have a normal cash ISA and have contributed to it this tax year then you cannot open the help to buy ISA, but again, you can transfer a maximum of £1,200 into the help to buy ISA in order to open one.