The withdrawal penalty on lifetime individual savings accounts (Lisas) has been cut in an attempt to help savers struggling amid the crisis. Lisas are designed to help people saving for a first home or their retirement.
If you are over 18 and under 40 you can open a Lisa and deposit up to £4,000 a year. As with other Isas your money can grow tax-free but there is an added benefit: every year the government will top up your savings by 25%. So you could get an extra £1,000 a year.
You can only use the money to put down a deposit for your first home or to help with retirement. So, if you try to access it before your 60th birthday for anything other than to buy your first home you usually pay a 25% withdrawal penalty.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The government has now announced that the penalty is being cut to 20% until April 2021. That may not sound like much, but it effectively means you are only giving back the government bonus if you access your cash early rather than some of your own savings too.
“We know that some people are experiencing financial difficulties during these unprecedented times ,” says John Glen, the economic secretary to the Treasury.
However, that doesn’t mean Lisa holders should rush to access their cash. If the money is in a cash Lisa then it can be withdrawn easily enough. “But any money saved into an investment Lisa may be subject to the fluctuations of the stockmarket,” says Richard Pearson, director of investment platform EQI.
And that means people may well sell near the bottom, forfeiting the higher returns that being patient and allowing the portfolio to recover could bring. “Markets have been severely troubled... and therefore investors’ portfolio values could be diminished [at present]. Selling investments and withdrawing money now could crystallise losses and mean permanent reductions in the value of their savings.”
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Act now to bag NatWest-owned Ulster Bank's 5.2% easy access savings accountUlster Bank is offering savers the chance to earn 5.2% on their cash savings, but you need to act fast as easy access rates are falling. We have all the details
-
Moneybox raises market-leading cash ISA to 5%Savings and investing app MoneyBox has boosted the rate on its cash ISA again, hiking it from 4.75% to 5% making it one of top rates. We have all the details.
-
October NS&I Premium Bonds winners - check now to see what you wonNS&I Premium Bonds holders can check now to see if they have won a prize this month. We explain how to check your premium bonds
-
Bank of Baroda closes doors to UK retail bankingAfter almost 70 years of operating in the UK, one of India’s largest bank is shutting up shop in the UK retail banking market. We explain everything you need to know if you have savings or a current account with Bank of Baroda
-
How to earn cashback on spendingFrom credit cards and current accounts to cashback websites, there are plenty of ways to earn cashback on the money you spend
-
John Lewis mulls buy now, pay later schemeThe CEO of John Lewis has said the retailer will consider introducing buy now, pay later initiatives for lower-priced items.
-
State pension triple lock at risk as cost balloonsThe cost of the state pension triple lock could be far higher than expected due to record wage growth. Will the government keep the policy in place in 2024?
-
Paragon raises rate on one-year fixed cash ISA to 5.75%Paragon Bank ups its one-year fixed cash ISA rate to 5.75% - is it enough to top the table?
