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The UK government has recently released a new type of ISA, the Lifetime ISA, to help first time buyers, such as myself.

My goal is to save £100,000.

My current savings are (all figures are rough):

  • Help To Buy ISA: £6000 (monthly payments of £200, opened: ~2 years ago)
  • Stocks & Share ISA: £3200 (initial investment: £3000, opened: ~1 year ago)
  • Rainy day savings: £6000 (sitting in a current account, not accuring interest)

My monthly income is £2200. My monthly expenses are quite low at around £500. I am not putting anything into my pension yet, but this is a topic for another question.

Given the benefits of each ISA and my goal, what do you think I should do? Should I move the funds from the Help To Buy ISA into my Stocks And Shares ISA or into a Lifetime ISA?

ISAs description

EDIT: I have done some calculations and plotted the results. The following is assumed:

  • Help To Buy ISA (variable) interest rate is 4% (what mine is at currently; EDIT: this has changed since I last checked, down to 1.5%)
  • Lifetime ISA interest rate is 0.75% (best (and only) rate I found)
  • Interest is applied annually for both ISAs
  • Monthly contributions to Help To Buy ISA are £200 (the max allowed)
  • Monthly contributions to Lifetime ISA's are £333.33, such that the annual contribution totals £4000; this is the max amount you will get the 25% bonus for.
  • Starting balance for both is £1200 (this is based on the allowed starting balance for a Help To Buy ISA)

enter image description here

So it looks like if you follow the maximum restrictions for each ISA, a Lifetime ISA will help me reach my goal sooner, unless I am missing something.

It is to be noted that I could speed up the process even further if I place more than £333.33 in the Lifetime ISA.

  • Can you provide how you calculated those graphs? They look somewhat different to when I did them on Excel. – Talisman Jan 23 '18 at 16:41
  • I wrote a script in Python. Here it is: pastebin.com/zpWQbVV3 If you are familiar with Python you can edit the variables to suit your situation. Note that I wrote it in 10 mins so there is a chance that there is a mistake in it. – turnip Jan 23 '18 at 16:56
  • I know it roughly, but using MSE and my own calculations, I arrive at ~19 years for the LISA @ 0.075%. On the MSE calculator this was even assuming interest was monthly on the £1k bonus, rather than the annual return it is in practice. I did this by dividing 1000/12mth = "extra" per month: £416.67 vs the actual £333.33. See: image.prntscr.com/image/MTkLVRghTI2LUgEiGE5jIg.png – Talisman Jan 23 '18 at 17:15
  • The rate is 0.75% and you have 0.075% in your image? – turnip Jan 23 '18 at 17:19
  • Sorry, still had my decimal hat on. Here's the updated version; ~18 years: image.prntscr.com/image/vYy2e5PdSlCP3O7C5DWnmQ.png – Talisman Jan 23 '18 at 17:22
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Your question is somewhat similar to one I recently asked too (although centred around pension savings):

Which is more advantageous: Lifetime ISA or SIPP?

You mention the LISA rate is 0.75% (which is frankly, very low - I'm assuming that it is Skipton you found, too). Whilst the Cash LISA has not been adopted much, have you considered a S&S LISA? This can co-exist alongside a S&S ISA, which you already have.

A few bits of information would make this answer more accurate; such as your age, and whether you have any provisions set aside for a pension/retirement fund. Also, the fee levied for a partial withdrawal not for retirement or first time house buying has been set by the government at 5%, in addition to the bonus being removed.

With a S&S LISA, there is the inherent risk of an investment as ever, but the potential is there to attain higher returns than either the H2B or the Cash LISA. If you are younger and are able to ride out this risk, it may be a more viable option to reach £100k before 12(?) years.

There are considerations about whether or not you think you may need the money for other things later down the line. Due to the fee of the LISA, you should be sure that anything you commit is absolutely not needed until you are buying a house (first time) or are of retirement age.

If you are sure you won't need the funds for anything else, I would convert the H2B funds to a (S&S) LISA - this way it can also double as a pension fund if you choose to go down that route, or work in tandem with a SIPP. You can pay into a S&S ISA and a S&S LISA in the same tax year too, for clarity.

  • Yes, I have considered the LISA as a S&S ISA. After some thinking, I think the best option is to keep the HTB and open a LISA as well. The repercussions of withdrawing early from the LISA are something that I am still thinking about however... – turnip Jan 23 '18 at 16:58
  • Not a bad decision by any means; also note that you can obtain the bonus on your existing H2B savings if you transfer via the bank (instead of just withdrawing it all) if put into a LISA, although it would count against your £4k max now that we are past April 2017. – Talisman Jan 23 '18 at 17:01
  • Also, do note that you can only use one ISA type when purchasing a house, not both in conjunction. – Talisman Jan 23 '18 at 17:09
  • Ah, that is actually something I had been meaning to find out. Thank you. In this case, having both open with the purpose of buying a home is a bit pointless. – turnip Jan 23 '18 at 17:15
  • Yes, for posterity this is listed here in the official Gov.uk documentation under Section 1.15: gov.uk/government/uploads/system/uploads/attachment_data/file/… – Talisman Jan 23 '18 at 17:17

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