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Cash Lifetime ISA vs Stocks and Shares Lifetime ISA
By
Anya Gair
Last Updated 10 April 2024
To save or invest? Thatâs the question. Turns out, making decisions for your first home starts waaayy before the house-hunting stage. It all begins with which account youâll choose to build your deposit.
In this guide
- Whatâs the difference between a Cash Lifetime ISA and a Stocks and Shares Lifetime ISA?
- Can you switch from a Cash Lifetime ISA to a Stocks and Shares Lifetime ISA?
- Can you have both a Cash LISA and a Stocks and Shares LISA?
- Are there any penalties or fees for withdrawing funds from a Lifetime ISA?
- Why open a Lifetime ISA with Tembo?
Itâs a smart idea to open a Lifetime ISA if youâre saving for your first home because you can score up to ÂŁ1,000 towards your home every year, thanks to a 25% bonus from the UK government. Plus, youâve got a choice. You can save money in a Cash Lifetime ISA or invest with a .
But how do you decide? Letâs start with the basics.
With a Cash Lifetime ISA, your money and the government bonus gains interest over time. While with a Stocks and Shares Lifetime ISA, your savings and the government bonus will be invested in the stock market.
To help you decide which one - a Cash Lifetime ISA or Stocks and Shares Lifetime ISA - is right for you, weâve outlined the pros and cons of each option below.
Pros and cons of a Cash Lifetime ISA
Pros
Saving is a safer option than investing
You earn interest over time. Itâs 4.3% (variable) per year (or in finance-speak, AER â annual equivalent rate) with us.
Cons
House prices could go up faster than it takes for you to build your deposit (but hopefully, with our help, that wonât be the case).
Pros and cons of a Stocks and Shares Lifetime ISA
Pros
If the value of your investment goes up, you could buy your home sooner.
Choose the level of control you want. Some providers let you pick where you want to invest, while others do the thinking for you.
Cons
If the value of your investment goes down, you could lose some (or all) of your money and it would take you longer to buy your home. Major buzzkill.
The government bonus and returns are reinvested so the value of these can also go down so you can lose some or all of this as well.
It can be hard to know whether to simply put your savings into a Cash Lifetime ISA or invest your money instead. To help you decide, ask yourself these two questions:
đ°ď¸ When do I want to buy my home?
Typically, anything under 5 years is a short-term goal and if itâs over 5 years, itâs a longer-term one when it comes to saving for your first home. If you have a longer-term goal, you might be more likely to invest, because it gives you a better chance of getting a return (even though itâs not guaranteed), so a Stocks and Shares Lifetime ISA could be better.
If you have a shorter-term goal, you might be more likely to save, because you are less likely to be able to recover from a potential loss in investments, so a Cash Lifetime ISA might be the better option.
If youâre not sure when you want to buy your home, our app can help. Set your budget, tell us how much you can set aside each month (and how much youâve already put away) and weâll show you how long it could take to buy your first home.
đŁ How much risk do I want to take?
As mentioned in the pros and cons, saving can be a risk if house prices go up faster than you can build your deposit and investing can be a risk if the value of your investments go down. But typically, investing is riskier than saving - you may get back less than you invested, but you could also see a better return.
Different investments also come with different risk levels â from low, to medium to high. On a scale of 1 to 7 (1 being lower risk with typically low returns and 7 being higher risk with typically high returns) the sustainable ESG fund that you invest in with a Tembo Stocks & Shares Lifetime ISA sits at 5.
Ps: As much as past performance shows you how well an investment could perform, it doesnât mean it will always be that way. It could be less and it could be more (đ¤).
Yes, you can transfer your savings from a Cash Lifetime ISA to a Stocks and Shares Lifetime ISA. Whatever you do, donât just close your current LISA. When you close a LISA (or any other kind of ISA) and take your money out, youâll remove it from the tax-free account it's sitting in. This means if you withdraw your savings out, they wonât be protected any more and you may have to pay tax on them. Plus, withdrawing funds from a Lifetime ISA for anything other than buying your first home or retirement could incur a hefty 25% withdrawal charge.
Instead of just taking your funds out of your current LISA, you need to ask your new provider to transfer your funds to your new account. You normally have to provide your old LISA providerâs details and you may need your old account details to hand too.
Transfer your LISA to Tembo today
Voted the UKâs Best Lifetime ISA, weâre experts in making home happen, faster. Simply download the app and tell us about your current provider, and weâll take care of the rest.
Get started
Yes! You can have both a Cash LISA and a Stocks and Shares LISA. However, you can only open and pay into one Lifetime ISA each tax year, up to ÂŁ4,000. So you could have both types of LISAs and alternate which one you pay into each tax year. That way, you could use one LISA for saving for your first home in the short-term, and the other for long-term saving for your retirement. Or you could have both types to reduce the risk of getting back less than you put in - if the value of your investments goes down, your savings in your Cash Lifetime ISA wonât be affected.
Are there any penalties or fees for withdrawing funds from a Lifetime ISA?
Withdrawing funds from a Lifetime ISA for any purpose other than buying a first home or retirement before the age of 60 will incur a penalty. Youâll have to forfeit your government bonus and also have to pay an additional 25% withdrawal charge. If you purchase a home above the ÂŁ450,000 threshold, you will also be hit by the withdrawal penalty as this classifies as an âineligibleâ purchase.
Why open a Lifetime ISA with Tembo?
With a Tembo Lifetime ISA, you get so much more than a government-boosted savings or investment account.
You get:
- An interactive countdown that shows you when you could buy your home.
- Personalised tips and tricks to help you put more money aside.
- Money-saving challenges that could help you buy sooner.
- Monthly cash giveaways
- Gift Links to share with family and friends so they can contribute to your pot on birthdays, Christmas and other special occasions
- âTeam Upâ â our feature where you and your partner (or best friend/family member) can collab on the deposit for your first home together. When you both open a Tembo Lifetime ISA, you could get up to ÂŁ2,000 towards your home every tax year.
- Features based on behavioural science that help your brain build better money habits.
- A place to keep track of spending.
- Automatic payments to build your deposit in your sleep
- Exclusive in-app content about money, mortgages and the home-buying process.
- + access to all our exciting, upcoming features!
Start your journey to homeownership
Open a Lifetime ISA with Tembo today on our award-winning app and join the +350,000 others saving for their first home.
Download the app
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