Is a Lifetime ISA worth it?

To work out if a Lifetime ISA is worth it, lets take a look at the pros and cons of Lifetime ISAs:

Pros and cons of Lifetime ISAs

✅ Boost your deposit by up to £1,000 each year

If you max out your Lifetime ISA savings each tax year, you'll get the maximum government bonus of £1,000 annually. No other account will boost your deposit savings this much, making the LISA a no-brainer for many first-time buyers.

✅ Earn interest on your savings

Open a Cash Lifetime ISA and not only will you get the 25% government bonus, your savings will earn interest too. With a Tembo Cash Lifetime ISA, you’ll benefit from our market-leading rate of 4.75% AER (variable)* - over 5-years this would increase your deposit by hundreds versus the next best available rate. 

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✅ Your bonus will be paid into your LISA every 4-6 weeks

You don’t need to do anything to claim the 25% bonus. It’ll automatically be paid into your LISA every 4-6 weeks. This gives the Lifetime ISA an edge over the government’s Help to Buy ISA, which will only pay the bonus when you’re ready to complete a property purchase. 

To learn more, take a look at our guide: When is a LISA bonus paid?

You might also like our Help to Buy vs Lifetime ISA guide

✅ Work with others to get on the ladder sooner

If you're buying with a partner, friend or sibling (and you’re all first-time buyers), you can open a Lifetime ISA each and effectively double your government bonus. With the Team Up feature on our app, it’s easy to build your deposit together.

Buying a house with someone who’s not a first-time buyer? Don’t worry. Although they won’t be eligible for a Lifetime ISA, you can still put the savings from yours towards the home you buy together. 

Learn more: Everything you need to know about buying a house with your partner.

✅ Stay motivated to save

Saving a deposit can take such a long time that it’s easy to feel demotivated, especially if you’re renting or you’ve watched your living costs go up, while your income stays the same. 

With the Tembo Lifetime ISA, you’ll benefit from personalised money-saving insights, positive reminders and monthly cash giveaways. So if you ever feel like giving up on your homeownership dreams, Tembo can help you stay on track and reach your savings goals.

Want to know more? Here are 12 reasons to use Tembo to build your first home deposit.

❌ The home must be worth less than £450,000

You can only use your Lifetime ISA to buy a property worth £450,000 or less, even if you’re in London or buying a home with someone else. If you’d struggle to find a property in your area within this budget, you may be better suited to a traditional savings account or cash ISA. 

If you’re struggling to afford your local area, it’s worth speaking to one of our mortgage experts. Our award-winning team have helped thousands of first-time buyers to discover how they could increase their mortgage affordability and buy their first home… even after other mortgage brokers or banks said it wouldn’t be possible! Get started today here

❌ Must be open for 12 months+ before you buy a home

You need to have your Lifetime ISA for 12 months or more before you can use it to buy your first home. It's only classed as 'open' when you’ve made your first deposit, so pop £1 in it straight away to start the clock.

❌ Using the money for something other than a home or retirement will cost you

If you withdraw your money for anything other than your first home or retirement, you’ll be charged a 25% fee on the amount you withdraw. Many people assume this’ll simply leave them without the government bonus, but you’ll actually lose some of the money you contributed too. 

Let’s imagine you have £1,250 in your LISA, made up of a £1,000 contribution and a £250 bonus. Withdraw the money for holidays, a new sofa or day-to-day expenses, and the 25% withdrawal penalty will be charged on the full £1,250. Leaving you with just £937.50.

Learn more: How to open a Lifetime ISA

Is a Lifetime ISA better than a normal ISA?

Whether it’s better to open a Lifetime ISA or a normal ISA depends on your goals. If you’re looking for somewhere to save a deposit, a Lifetime ISA tends to be better than a normal ISA because you’ll get the government bonus + tax-free interest, rather than just tax-free interest. 

However, if any of the following apply, you may be better suited to a normal ISA or a traditional savings account:

• You’re not a first-time buyer
• You want to buy a home worth more than £450,000
• You want to buy a home within 12 months of opening your account and making your first deposit
• You want the freedom to withdraw money for whatever you want, without paying a 25% government penalty
  

Remember, you can open a Lifetime ISA and a normal cash ISA and save into both - just make sure everything you save across your two accounts doesn’t exceed your £20,000 ISA annual allowance. 

Learn more: How much can you put in a Lifetime ISA?

Should I get a Lifetime ISA?

If you’re happy to wait for 12 months or more to buy your first home and you can find a suitable property for less than £450,000, in most cases a Lifetime ISA will be worth it. For one, a LISA is the only place where you can boost your house deposit savings by 25% for free. And you’ll also earn interest on your savings, just like you would with a traditional savings account or normal cash ISA.

If you’re thinking of using a Lifetime ISA for retirement, whether it’s right for you depends on your employment status and tax bracket. A Lifetime ISA can be a great way to save for retirement if you don’t have access to a workplace pension, for example if you’re self-employed or a stay-at-home parent.

If you do have access to a workplace pension, your pension will typically be more rewarding than a Lifetime ISA. This is because not only will you get tax relief on your pension contributions, but your employer will contribute too. You could have a Lifetime ISA and a pension if you want, but make sure you’re placing enough into your pension to make the most of your employer’s contributions.

Pensions (both workplace and private) are particularly rewarding if you’re a higher or additional rate taxpayer, as your tax relief will be far greater than the LISA bonus.