The days of high interest savings are over for now – but there is one account that will add £1000 a year to the money you put away.
A Lifetime ISA – available to anyone between the ages of 18 and 40 – will add 25% to all the cash you add to it, the Mirror reports.
You can save £4,000 in it each financial year – meaning the government would top it up by £1000.
The most recent figures from HMRC show people have now squirrelled away £604million in these accounts, seeing £151million added on top – working out at £677 each.
Only 220,000 people are using it, many after the government’s Help to Buy ISA closed to new applications in November 2019.
But be aware that unless you withdraw money for your first home or retirement, you won’t keep the government top-up.
Word is getting out – last year the number of people with lifetime ISAs surged 45%, according to HMRC, with 69,000 new accounts opened and £118million added to savings pots.
Richard Pearson, director of investment firm EQi, said: “This is a huge jump in both the number of savers and the amount of money being saved in a lifetime ISA.
“The growing uptake shows that people are not only keen to make their money work as hard for them as possible, they are also saving with a purpose in mind – their first home or towards their retirement.”
This is what you need to know if you’re thinking of joining the growing band of people seeing their savings topped up automatically:
What can a Lifetime ISA be used for?
You can take your money out whenever you like, but only get to keep the government top up if the cash is used to buy your first home or you wait until you are 60.
But people prepared to wait to use their money will struggle to find a better deal.
How much can you save?
You can save up to £4,000 a year into a lifetime ISA. You can put this into a cash account or a stocks and shares account
Who can open a Lifetime ISA?
British residents between the ages of 18 and 40, although you can keep paying in until you are 50.
Where can I open one?
Five providers currently offer cash lifetime ISAs: Nottingham Building Society (1.25% interest), Moneybox (1%), Paragon (0.75%), Newcastle Building Society (0.35%) and Skipton Building Society (0.35%) – these interest rates were correct as of Sunday, June 28 but are subject to change.
What about stocks and shares lifetime ISAs?
Putting money into the markets means you could earn a lot more on it – but could also end up with less than you started with.
Some providers will do all the work for you, meaning you just transfer cash and their experts pick shares.
What are the conditions for withdrawing money?
Before coronavirus, you were charged 25% of the amount withdrawn if you took cash out before you turned 60 or if you not buying your first home.
The government has now reduced this to 20%, so although there is still a penalty, it means savers should not lose any of their own savings.