One thing we’ve quickly learnt as parents is that raising a family these days isn’t the cheapest exercise. In fact, it was astonishing to read that parents in this country are spending 14 per cent of the typical UK salary on kids’ essentials alone. That’s just for things like food, entertainment and babysitting, and excludes the rest!
Nevertheless, even though the budget may be stretched at times, we’re big believers in squirreling as many pennies aside as we can each month in order to save for our family’s future. So it was with interest that we noted the announcement of a new Lifetime ISA (LISA) in the recent Budget speech. Finding a suitable home for our savings isn’t an easy task these days, with interest rates on savings accounts and Cash ISAs having plummeted in recent years, and turning to the stock market seems about as sensible as going to the casino given recent volatility.
So this new type of ISA certainly struck me as appealing, and seems a good option once it goes live next year.
How will the Lifetime ISA work?
Essentially, saving into a LISA will mean you benefit from a 25 per cent state-funded bonus on up to £4,000 per year. It’s available to anyone over the age of 18 (and under the age of 40), and the bonus is paid annually until you turn 50. So that means that, in theory, you could get as much as £32,000 worth of free money by using it. Most of us are sadly a little bit further down the line in terms of age, but it’s still a big boost potentially. It’s also an individual product, meaning you and your spouse can each have one.
It’s specifically geared towards potential first-time buyers and/or those looking to save for their retirement. Bear in mind that because it is an ISA, it’s tax free, and the bonus from the Government is over and above the interest you’ll receive as well. The only catch is that if you withdraw your money before the age of 60 (unless it is to pay for your first-home, or if you are terminally ill), you lose out on the bonus and interest earned, and you will be hit with a 5 per cent penalty on the amount withdrawn too.
Is it the best option for us?
It’s obviously a personal decision, and it might be worth speaking to a financial adviser or expert. The Help-to-Buy ISA is a similar scheme to help people onto the property ladder, and also involves a 25% bonus from the government. But there are other options too. One interesting alternative we stumbled upon recently was the Innovative Finance ISA, which goes live in the next tax year.
This type of account is geared towards peer-to-peer lending investments, which involves lending your money to fellow consumers in need of a loan directly through an online platform. The interest is normally in the region of 6 per cent per year, which obviously blows that of banks and Cash ISAs out the water. There is the risk that the borrower doesn’t pay you back, but platforms have countered this by having a provision fund to cover any defaults, and even an insurance that pays out if this happens.
Then again, you may feel more comfortable putting your money in the bank, and that’s okay too. It will soon become slightly more appealing as well, with the Personal Savings Allowance going live next week. This will mean that around 95% of Brits will no longer have to pay tax on savings anymore, which is a handy boost.
Deciding the best way to go
Saving, and particularly investment, are always hugely subjective choices, and your individual circumstances are likely to differ from the person next door. There is no right or wrong way. But whichever way you decide to go with your money, it’s important to be conscious of the fact that there are a lot of decent options out there, and that you aren’t forced to settle for the poor rates being offered by most banks. Here’s hoping that it all goes well for you, and hopefully these new types of account can be of great benefit to you and your family for many years to come.
Family life is sooooo expensive isn’t it but we made the decision when the children were born to set up a direct debit each month to pay money into ISA’s for each child otherwise we knew we would never be able to save a penny. It certainly pays to keep shopping around too and moving them where/when you can to get the most of your savings.
I am frustrated by the fact that Isaac is the only one of mine with a CTF so the others miss out