Setting aside money is something many will do, be it for in case of emergency or a significant financial milestone. This may include saving in order to raise a mortgage deposit and get on the property ladder – and this week, Martin Lewis explained how these people could boost their savings.
First up, one caller – called Dani – told the financial journalist that she had recently begun saving for a mortgage.
“I’m basically just wondering what’s the best savings account? I do have a bank account and also a credit union account,” she said.
Martin enquired as to how old Dani is, to which she shared that she is 32.
“So, if you’re aged between 18 and 40, you’re able to open a Lifetime ISA,” he replied.
“Now, the key benefit to a Lifetime ISA is – I’m presuming you’re a first-time buyer – your savings towards your first home, the state adds 25 percent on top up to a maximum £1,000 per year.
“So, you can put £4,000 a year in and then the state will add £1,000 on top of that and you can do that each year.
“To buy a house, the house has to cost less than £450,000 and you have to have had it [the account] for more than a year before you can use it.”
Martin went on to highlight some of the options savers may look at when it comes to Lifetime ISA providers.
He reiterated that should Dani be sure she wanted to use the money to buy a property, then a Lifetime ISA could be a good option.
“As long as you’re definitely going to use it to buy a house, then a Lifetime ISA [is an] absolute no-brainer.”
Martin also pointed out where Dani could find the Lifetime ISA provider currently offering the highest interest rate.
“The top-payer is Nottinghamshire Building Society,” he said. “Get the 25 percent bonus on top, and Nottinghamshire also gives you 1.25 percent interest.”
However, there is one issue to consider, Martin warned, and that’s withdrawal charges for ‘unauthorised’ withdrawals from the account.
With Lifetime ISAs, savers can face a 25 percent withdrawal fee if they take money out from the LISA account and the reason for doing so doesn’t fit a certain criteria.
Martin did go on to explain that the withdrawal rules have temporarily changed due to the coronavirus pandemic – meaning this fee is currently 20 percent until April 5, 2021.
“Currently this doesn’t happen because of coronavirus, this year there will be no penalties,” he began.
“But, if in future you decided to withdraw the money not for a house, you would effectively paya 6.25 percent penalty on that.
“Or, you could leave the money in there until you were 60 and then use it penalty-free. But as long as you’re definitely going to use it to buy a qualifying house – which is any residential property under £450,000, no brainer: Lifetime ISA.”
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