Martin Lewis: Should I move my Help to Buy ISA into a Lifetime ISA?
Which is better, the Help to Buy ISA (H2B ISA) or the Lifetime ISA (LISA)? I'm asked this all the time. No wonder, as they both offer an unbeatable, no-brainer 25% bonus for first-time buyers saving in them – yet there are some big differences, so I've bashed out an answer...
The first point to note is that you can in fact have both of them. However, before you get too excited, you can only get the first-time buyers' bonus on one (this is done as LISAs can also be used towards retirement saving).
Yet as the H2B ISA has been closed to new applicants since 2019, the real question is whether first-time buyers should keep it or move savings in it into a LISA (I'll explain how later). So that's my focus here – if you're looking for more info on the top LISAs and exactly how they work, click the link to go to that guide.
The maximum LISA bonus blows away H2B ISAs
A quick glance at my first table and you may think the choice is obvious...
|Saving limit||£200 each month (a)||
£4,000 per tax year
|Max annual savings||£2,400 (a)||£4,000|
|Max annual bonus||£600 (a)||£1,000|
|Total max bonus||£3,000
(you only get the bonus on the first £12,000 in there)
(if you opened at age 18, and got the full bonus each year until age 50 when it stops)
|(a) When you opened a H2B ISA, you were allowed to put in £1,200 just in the first month. As you will now have had it open at least 16mths, I've excluded it from my calcs|
As the table clearly shows, you can put much more in a LISA and therefore get a much bigger bonus.
That is far from the end of the story
As they say, size isn't everything. It may be to the LISA's advantage, but the H2B ISA's boon is flexibility and nimbleness. So even though you can get a bigger bonus elsewhere, it is still a winner for some. Let me headline the main wobblers for you...
- Don't switch a H2B ISA to a new LISA if you want to buy within a year. Once you've saved £1,600 in a H2B ISA, you can use it towards a home and get the bonus – most who are saving in it have already hit this milestone.
However, with the LISA you're only eligible to use the bonus towards your first home once it has been open a year. So if you're opening a new one to shift the H2B ISA into, there's no point doing this if you're planning to buy soon. Though if you've already had one open for that time, it's fine.
Unsure? You could always open a LISA with £1 today, to get the clock ticking in case you want to shift money across in the future.
- If you're age 40 or over, you can't open a LISA. Anyone age 16 or over was allowed to open a H2B ISA. However, LISAs discriminate on age – to open them, you need be between 18 and the day before your 40th birthday (once it's open, you can keep it after you're over 40), so some may have missed the boat.
PS: Even if, like me, you still look younger, I'm afraid it's your birthdate that counts.
- Only shift to a LISA if you're pretty certain you'll buy a qualifying home. With a H2B ISA, you can withdraw money at any time you like, for any reason, and you still get any interest earned, you just don't get the bonus.
With a LISA, withdraw for owt other than buying your first home (or once you hit age 60) and there is a penalty that takes roughly 6.25% off what you put in (see how LISA penalties work for details). So if you'd put £8,000 in, you'd lose £500.
So H2B ISAs are a safer bet for those who aren't 100% sure they will be using the money to buy a qualifying home (which with a LISA is one costing £450,000 or less).
- Over £5,600 in a H2B ISA? A LISA may not result in a bigger bonus. As the most you can put in a LISA is £4,000 per tax year – and money moved from a H2B ISA counts towards that – if your H2B ISA has more, it may take time before you see any benefit from a LISA.
That's because, if you've more money to save, you have to compare how much you could put in a LISA by the time you buy to how much you can put in a H2B ISA.
If you've under £5,600, as you must have a LISA for at least one year to use it, you should be able to put more in a LISA than a H2B ISA, even if you bought as soon as you can (I won't explain the maths – if you're good with numbers, you'll work it out; if not, it'll only confuse you, so just trust me).
If you've more than that, then whether you get a bigger bonus from a LISA depends on when you're likely to buy.
For example, if you've saved £12,000 (the amount needed to get the max £3,000 bonus), you'd need to put £4,000 in this tax year, the next tax year and the one after that. How long that takes depends on when you did it, as this is about the tax year, which runs from 6 April to 5 April the next tax year.
- Start on 4 April: After a one year and two days, you could've moved the money across – then it'd be another year before you could add more.
- Start on 6 April: It'd be two years before you had moved all the money across – then it'd be another year before you could add more.
So if you plan to buy before you can add any more money to the LISA, then there's no point. Most should keep the H2B ISA's flexibility (unless the LISA's strengths of a higher purchase price and being usable for a home deposit are important to you – see the 'at a glance' chart below).
- Trivial point – H2B ISAs tend to have higher interest rates. At the time of writing this, the top-paying H2B ISAs (if you choose to switch to up the rate) are 1.75%, though some will still have higher rates than that lasting from when they were set up. However, the top-paying LISA rate is just 0.85%.
This may sound a big difference, but compared to the bonus you can get, it is trivial. The only time this would come into play is if everything else was equal, and you couldn't max out a LISA.
Time for a chart to show the differences at a glance…
There are some other differences between the H2B ISA and the LISA. For example, if you live outside London you can use the LISA to buy a much bigger home, worth up to £450,000 – compared to the H2B ISA, which is a maximum £250,000. Here are the two side-by-side.
I've bolded the winner in each category:
|When's the bonus added?||On completion||Monthly|
|What can it be used for?||Only the mortgage deposit||Home deposit and
|Invest as well as save?||No. Savings only||Yes (via stocks & shares LISAs)|
|Max property price it can be used towards?||£250,000 (£450,000 in London)||£450,000|
|How quickly can you use it?||Once you've £1,600+ saved (can be done in a min 3mths)||After the LISA's been open 12mths|
|Can I withdraw money if not buying a home?||Yes||Only once age 60+. If earlier, you pay an effective 6.25% penalty|
|Can I have it as well as a cash ISA?||
No (though some providers have a workaround)
|Yes (as long as the max saved in total isn't over £20,000/yr)|
My 'in a nutshell' summary to finish...
If you'll DEFINITELY buy a home for less than the LISA maximum of £450,000, are aged 18 to 39, and you WON'T do it within a year of opening, and can max out the savings, go for a LISA as you will get a bigger bonus.
Yet if you're BUYING QUICKLY, you're 40 or over, or you're not 100% sure you'll buy at all, then it's safer to stick with your H2B ISA.
How to transfer a H2B ISA to a LISA
If you don't have one already, just open the top LISA and ask it to transfer the money across from your H2B ISA. If you already have a LISA, just contact it and request a transfer.
If you have more than £4,000 in your H2B ISA, you will need to move £4,000 now and then ask to transfer the rest during the next tax year. Some H2B ISAs may close your account when you transfer some of the money out, in which case you'll need to close it down, take the money out and save it elsewhere until you can put it in a LISA.
I hope that helps. Do let me know in the comments below if it does or if you have any questions I've not answered. (Remember, this is just about which is best – for full info on each product, see the LISA or H2B ISA guides).