Moneybox launches top-rate 1.4% cash Lifetime Isa for first-time buyers – but is it better than Help to Buy?
FIRST-time buyers can now get paid 1.4 per cent on their savings with a new lifetime ISA from Moneybox.
The investing app has teamed up with OakNorth Bank to offer the chart-topping account, which could see your savings boosted by an extra £1,000 a year free cash.
A lifetime ISA – or LISA – is similar to a Help to Buy Isa where the Government will top-up your savings by 25 per cent if you use it to buy your first house, or for retirement after 60.
You can save £4,000 every tax year in a LISA, which means you could get up to £1,000 bonus cash annually – or a total of £32,000 if you saved for the maximum 32 years – plus the interest you earn on your savings.
Moneybox and OakNorth's account pays a chart-topping 1.4 per cent interest, which is accrued daily and paid monthly.
That means if you put in £4,000 when you open it, you'll earn £56.36 interest after the first year.
What are the best Lifetime Isa rates?
IF you're looking to open an LISA then there are the top-paying accounts:
Moneybox and OakNorth
Interest rate: 1.4 per cent
Open with: £1
Newcastle Building Society
Interest rate: 1.1 per cent
Open with: £1
Skipton Building Society
Interest rate: 1 per cent
Open with: £1
You'll also have access to the maximum £1,000 Government top up.
The next best rate on a LISA account is 1.1 per cent from Newcastle Building Society, where you'll only earn £44.22 on the same amount.
Moneybox's account can be opened with just £1 or you can transfer cash from any existing Isas you might already have.
It's digital-only though so you'll need to download the Moneybox app to open one.
But is it as good as a Help to Buy Isa?
Not many banks and building societies offer the LISA, so the interest rates on them aren't great – you'll earn more interest on a Help to Buy Isa.
For example, Barclays offers the top interest rate on a Help to Buy account at 2.58 per cent but the maximum you can save every month is £200.
The most you can save in the first year is £3,400 a month though – £1,000 to open and then a maximum of £200 a month – and because you regularly pay into this one, the maximum interest you'll earn is slightly more at £59.91.
What are the best Help to Buy Isas?
MANY high street banks offer Help to Buy Isas but not all of them offer the same interest rates. Here are the top five accounts:
Barclays
Interest rate: 2.58 per cent
Open with: £1
Nationwide
Interest rate: 2.5 per cent
Open with: £1
NatWest
Interest rate: 2.5 per cent
Open with: N/A
But the maximum Government bonus you'll receive is just £850 after the first year, compared to the £1,000 you can earn in a LISA.
On the whole, if you know you can save more every year then a LISA is probably a better option at the moment.
But as Help to Buy Isas are being scrapped at the end of this year better Lisa rates are likely to come onto the market as competition heats up.
Another thing to think about is that you'll be charged a penalty if you want to withdraw your cash early from a LISA, unlike with a Help to Buy Isa.
If you withdraw in the first 12 months of opening the LISA for any reason other than buying your first home or retirement, you be charged a 25 per cent penalty fee.
Lifetime ISA catches
- IF you want to buy a home worth more than £450,000 with your LISA, 25 per cent of what you withdraw is taken off
- You can only use a LISA for a property if you have NEVER owned a property before (including a share of a property that was inherited, or a home overseas)
- If you're a first-time buyer purchasing with someone else (a partner or friend, for example), they cannot have owned a property before
- If you're using the money for a new home it is paid directly to a solicitor, not to you
- If you reach the age of 40 on or before 6 April 2018 you won't be eligible for a LISA
- If you're using the money for retirement you can access it on your 60th birthday. By contrast, you can access money in a pension from the age of 55.
That means you'll lose £6.25 per each £100 you pay in.
Laura Suter, personal finance analyst at investment platform AJ Bell, said that LISA has come a "long way" since it first launched but admits there is still a long way to go.
She added: "It still looks measly in comparison to the top-paying widely offered Help to Buy ISA rate of 2.58 per cent from Barclays.
"The launch takes the number of cash LISA providers up to four, compared to 27 Help to Buy ISA providers, showing the effect that more providers in the market could have on rates."
Martin Lewis is urging all wannabe first-time buyers to open a Help to Buy Isa in the next four months or risk missing out on up to £3,000 free cash.
You can actually open a LISA and Help to Buy Isa at the same time, although you can only use the Government top-up from one to help you buy a house.
If you do decide to use the Government top-up on your LISA to buy a house you won't be able to get it again when you come to retire.
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