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The Lifetime ISA allows a saver to save up to £4000 a year and receive a bonus of 25% every year, meaning that there is the potential to earn up to a £1000 a year in bonus. However, there are restrictions on this which restricts when you can access your money. The money in the account can only be used to buy your first home or it must be kept in the account until you reach the age of 60.
The Lifetime ISAs have been created to revolutionise the current savings system in the UK and though there are many positives to this scheme, some experts are worried about how these accounts could affects savers in the future.
Earlier this month, the Financial Conduct Authority (FCA) warned consumers of the risks of signing up to one of these ISAs and stated that there is a danger some people will not fully understand the ISAs.
The Lifetime ISA is not due to launch until April 2017 and like many other financial products there could be some risks attached to it for the consumer. The FCA have specifically warned about some investors potentially not understanding the difference between a Lifetime ISA and saving in a pension.
There are also the early exit charges to consider not only will you be charged 5% of the total amount of savings in the account but you will lose your 25% bonus from the government. That is a substantial sum of money that could be lost for early withdrawal, limiting flexibility to access your money, flexibility that you can get with other accounts albeit for lower bonuses.
There is set to be a 10 week consultation following the FCA’s findings before the Lifetime ISA and its rules come into effect in April 2017. It is hoped by many experts that the issues the FCA has found will be addressed and dealt with before the ISA is available for people to sign up to.
To find out more about the Lifetime ISA visit the Money Saving Expert website or get in touch with an independent financial advisor (IFA) as soon as possible.
HMRC Lifetime ISA image via bbc.co.uk