Top-rate cash Lifetime Isa launched by Newcastle BS - bringing the total to just three

Newcastle Building Society has launched a cash Lifetime Isa (Lisa) at a market beating rate of 1.1% - making it the third provider to launch this product.

The Lisa was introduced in April of last year and can be opened by anyone aged 18-40. Lisa savers can put away up to £4,000 a year until they are 50.

• Should I open a Lifetime Isa?

It can be used by first-time buyers to fund a deposit for a property or taken tax-free at the age of 60, with a tempting 25% bonus in either scenario.

They are aimed at young people looking to save a deposit for their first home or for retirement and are seen as the long-term replacement for Help to Buy Isas (HTB).

The deal from Newcastle beats the ones on offer from Skipton at 1% and the Nottingham Building Society at 1%.

Customers who are interested in opening a Lisa with Newcastle Building Society can open one online with just £1.

While you can’t currently transfer over an existing Isa to get a better rate, Newcastle says that it hope to bring this feature in at some point in the future.

Stuart Miller, customer director at Newcastle Building Society, says: “Encouraging and rewarding personal saving is an important step in addressing a culture of easy credit and consumer debt that has become prevalent and ultimately reduces the ability of individuals, couples and families to save and plan for their future.”

Is it a good deal?

Despite the fanfare surrounding the launch of Lisas last year, the number taken out has fallen short of government expectations.

According to figures from HMRC, a total of 166,000 Lisas have been set up, way below the 200,000 accounts the government originally expected to be opened.

• Three ways to fix the Lifetime Isa - Moneybox’s recommendations to the Treasury revealed

Choice is also limited, with many of the big banks and building societies failing to get on board with the scheme.

Rachel Springall, finance expert at Moneyfacts, says: “It’s encouraging to see more providers entering the cash Lifetime Isa market as it has been a bit scarce with competition. Loyal Newcastle Building Society customers could well seek out this new savings deal, so long as they can commit to regular deposits of course.”

First-time buyers looking to use a Lisa to buy their first house would be better off going for a Help to Buy Isa which offers a higher rate of interest.

There a number of Help to Buy Isa rates which beat the 1.1% offered by Newcastle hands down, including Barclays which offers a Help to Buy Isa at 2.55%.

It is also important to remember that if you choose to take your money out early from the Lifetime Isa and it is not for a deposit you will be hit with a 25% withdrawal penalty for the whole amount.

• The Nottingham launches cash Lifetime Isa to rival Skipton Building Society

Ms Springall says: “Potential first-time buyers will find that Help to Buy Isas are offering better interest rates, which come with the same 25% government bonus.”

She adds: “Lisas also carry different rules for later life withdrawals so savers best read up on the workings before they invest. At this stage I don’t feel that other providers will compete in the Lisa market as there still hasn’t been much take up, but it could change if the Help to Buy Isas get pulled in the future."

There has been speculation that the government could ditch the Lisa altogether. At the end of July, the Treasury Committee criticised the product as “complex and inconsistent” and called for it to be scrapped.

Hannah Maundrell, editor in chief of money.co.uk, says: "If you’re saving for your first home or retirement it’s a good option to consider as the government gives you a hefty bonus on top of your savings and you earn yearly interest.”

She adds: “However, a Lisa isn’t for everyone and it’s unlikely to be for you unless you’re saving a deposit for a house or retirement as you’ll be charged 25% on additional withdrawals making it a virtually pointless way to save."