Moneybox launches best-buy Lifetime Isa with a 1.4% rate

The Lisa from financial app Moneybox is designed for first-time buyers.

Moneybox has partnered with challenger bank OakNorth to launch a market-leading Lifetime Isa, which can be opened with savings of just £1.

The Lisa can be used by first-time buyers to fund a deposit for a property or taken tax-free at the age of 60. As well as paying interest, Lisas benefit from a 25% bonus from the government to encourage saving towards a home or retirement. 

The Lisa was introduced in April 2017 and can be opened by anyone aged 18-40. Lisa savers can put away up to £4,000 a year, which would amount to a government bonus of £32,000 in total for someone who used their allowance every year from age 18 to 40. They are seen as the long-term replacement for Help to Buy (HTB) Isas which are being phased out in November this year.

The Moneybox offering beats Newcastle Building Society’s Lisa which pays a rate of 1.1%, while Skipton Building Society and Nottingham Building Society both pay 1%.

Providers have been reluctant to offer Lisas since their launch and as a result competition to offer the best rates has been muted. 

Laura Suter, personal finance analyst at investment platform AJ Bell, says that the new rate is "a decent amount more" than the previous best-buy at 1.1%, amounting to an extra £14 a year in interest for a saver who uses their full £4,000 allowance.

"This isn’t going to contribute much more to the average house deposit, but we’ve come a long way since the launch of the first cash Lisa from Skipton, which paid just 0.5% in interest," she adds. 

“However, it still looks measly in comparison to the top-paying widely offered HTB Isa rate of 2.58% from Barclays. The launch takes the number of cash Lisa providers up to four, compared to 27 HTB Isa providers, showing the effect that more providers in the market could have on rates."

OakNorth is covered by the Financial Services Compensation Scheme so your savings are protected up to £85,000.

Is it better than Help to Buy?

The annual allowance is greater than the HTB Isa. With a Lisa, you can put away up to £4,000 a year – well above £2,400 (£3,400 in the first year) for the HTB Isa.

On top of this you have the 25% bonus just like the HTB Isa, but as you can save more for longer the bonus is also potentially bigger.

With the Lisa, you can get a bonus of £1,000 a year up until you are 50. If you open one at the age of 18, this means you could end up with a maximum bonus of £32,000 – far higher than HTB’s £3,000.

However, there are some restrictions with a Lisa. You have to keep your money in a Lisa for a minimum of one year before you can withdraw it, whereas you can get at your cash anytime with a HTB Cash Isa.

If you take your money out before you are 60 and you don’t use it to buy a home, you will have to pay a 25% penalty on the whole amount, that is 25% of what you’ve saved plus the government bonus.