Until recently, the Help to Buy ISA was the king of savings accounts. However, in the recent budget, it was revealed that there will soon be a new kid on the block.
The Help to Buy ISA adds an extra 25% to savings intended to be used for a deposit towards a first home. The Lifetime ISA – which will launch in April 2017 – also adds 25% to your deposits, but on top of that, you can save much much more.
Help to Buy ISA
|How much can you save?||£4,000/yr||£2,400/yr (£3,400 in year one)|
|Can you put lump sums in?||Yes||No, you need to save monthly|
|What’s the max bonus?||£32,000 (assumes max contribution over 32 years)||£3,000|
|When’s the bonus paid?||Annually (thus you get interest on the bonus once it’s paid)||When you buy a home (so no interest on the bonus)|
|Can you invest as well as save?||Yes, with cash & shares Lifetime ISAs||No. Cash only|
|What’s the max property price?||£450,000||£250,000 (£450k in London)|
|When can you use it to buy a home?||Once the ISA has been open 12mths||Once you’ve £1,600+ saved (which can be done in three months)|
|Who can open it?||Anyone aged 18 to 39||Any first-time buyer aged 16+|
As you can see, the Lifetime ISA trumps the Help to Buy ISA on paper due to being able to save much more, however it’s still a good idea to open a Help to Buy ISA now. Once the Lifetime ISA is available, you can simply transfer the Help to Buy ISA into it. So if you want to start saving, there is no need to hold off until the Lifetime ISA is available.
While the Lifetime ISA may be better overall, there are circumstances where the Help to Buy ISA is the only real option available to you. For example, if you’re aged 39+, the Lifetime ISA isn’t available to you, but the help-to-buy ISA is.
If you plan on buying a first home before April 2018, then Help to Buy is the only way to go. The Lifetime ISA won’t exist until April 2017, and even then you will need to have had it open for 12 months before you can withdraw the cash and get the bonus. The great thing about the Help to Buy ISA is that you can essentially access the money after just three months. You need to have at least £1,600 saved before you can withdraw cash, this equates to three months of maximum contributions (£1,200 for the first month, then £200 each month after). If you want to buy quickly, Help to Buy is for you.
If you’re a parent seeking to put money away for your children to buy a home in the future, you’ll want to use the Help to Buy ISA as this can be opened at age 16, whereas the Lifetime ISA can’t be opened until age 18.
Over the past year, the Help to Buy ISA has proved hugely popular, and the Lifetime ISA will likely prove just as popular – if not more so. If you want to start saving, then there really is no time like the present.