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Martin Lewis took a call from a member of the public called Virginia today who asked about savings options for her 18-year-old son’s money. She detailed that they had been looking at various bank accounts recently but none of them seemed to offer good interest rates and Martin, unfortunately, detailed that this is a widespread problem.
He said: “Well there are no really good savings accounts at the moment so I think you need to lower your expectations to start with.”
After getting a bit more information on how much money Virginia’s son had available and how often he planned to put it away, Martin highlighted some of the best options out there at the moment.
“Coventry Building Society is the top easy access account today,” he said. “Its variable rates could change and rates are likely to change, but that’s the top one.”
Given the age of Virginia’s son, Martin also highlighted long-term actions that could be taken, adding: “But what he really needs to look out for the bulk of his savings is a Lifetime ISA.
“A Lifetime ISA is a product where when you save as a first time buyer towards your first home, the state will add a 25 percent bonus each tax year on top of savings up to £4,000.”
Martin went on to detail where the best option can be found at the moment: “So, as long he’s going to use it towards buying a residential UK property that costs £450,000 or less and he’s never owned a home before, I would think a Lifetime ISA is a no brainer for him.
“The top cash one is Moneybox Cash Lifetime ISA at 1.1 percent.”
Lifetime ISAs can be opened by people aged between 18 and 40.
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Currently, the most that can be saved in a Lifetime ISA is £4,000 a tax year until the holder turns 50.
As Martin explained, the government will add a 25 percent bonus to the holder’s savings.
If used to its utmost potential, either £32,000 or £33,000 could be paid out in bonuses to Lifetime ISA savers – depending on when in the year a person turns 18.
The £4,000 a year that can be added in will count towards an annual ISA limit, which in total is £20,000.
Withdrawals can be made with no penalties so long as the saver is:
- Using the money to buy a first home
- Aged 60 or over
- Terminally ill with less than 12 months to live
A withdrawal charge will be levied if cash is withdrawn for any other reason.
This charge is currently – and temporarily – 20 percent but it will revert back to 25 percent from April 6, 2020.
Lifetime ISAs, like all ISAs, offer generous tax incentives.
Tax will not be levied on any interest generated on cash held within an ISA or income or capital gains from investments in an ISA.
Although it should also be remembered that personal savings allowances were put in place in 2016 which ensures that savings interest will not be taxed on up to £1,000 of earned interest for basic-rate taxpayers.
ISAs can be opened with a number of financial firms which includes banks, building societies, credit unions and stock brokers.
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