The majority of consumers are likely already aware of the concept of an ISA. This individual savings account provides a higher level of interest than normal accounts and there are variants which will invest the money of the client into various assets. However, there is a rather new addition into this group of fiscal options. It is known as a lifetime ISA (sometimes referred to as a LISA). Having originally launched in April 2017, there are numerous consumers who are not yet aware of the benefits that this scheme has to offer (as well as a few drawbacks). If you are curious to learn more, please take a look immediately below.
A Brief Definition of a Lifetime ISA
As you might have already guessed, the primary difference between a normal ISA and its lifetime counterpart is the fact that it is associated with a maximum deposit limit of 4,000 pounds every year. However, there are no limits in regards to the amount of years that this ISA can be held. The principle is nonetheless the same. A lifetime ISA enables account holders to generate tax-free interest. Assuming that funds are deposited for a number of years, these gains can certainly add up over time.
The Purpose of a Lifetime ISA
There are two main reasons why someone would want to invest in a lifetime ISA. The first is associated with first-time home buyers. This scheme will enable them to deposit more towards an initial mortgage payment. This will lower subsequent monthly obligations and as a result, free up additional finances.
The second intention of a lifetime ISA involves those who are planning for retirement (generally anyone who wishes to access liquidity after the age of 60). It is interesting to point out that in the past, the older generation and those looking to buy a first home purchased ISAs for entirely different reasons. A lifetime ISA can help to bridge this gap. For instance, first-time home buyers could use a portion of the funds towards a purchase while the remainder can remain stored away as an addendum to an existing pension plan.
Are There Any Downsides?
The primary drawback to any lifetime ISA is that it is still a relatively new scheme. As it has only been in existence for less than six months, few providers are offering this package as an option. However, this number should grow as the concept itself becomes more popular. The other potential downside is that (much like a normal ISA), premature withdrawal of these funds can lead to stiff penalties. Thus, those who are on limited budgets could run into problems in the future.
Lifetime ISAs are interesting concepts and they warrant a closer examination. If you feel that they are a viable option, it is a good idea to speak with your bank or your financial provider in order to learn more. After all, there is nothing wrong with doing a bit of research today to plan for what may be in store tomorrow!
