If you’re saving for your first home, choosing between a Lifetime ISA and a regular Cash ISA can mean thousands of pounds difference. Here’s how to decide.
Read more: See our Isas guide for a complete overview of this topic.
LISA vs Cash ISA — Quick Comparison
| Feature | Lifetime ISA (LISA) | Cash ISA |
|---|---|---|
| Government bonus | 25% on contributions (up to £1,000/year) | None |
| Annual limit | £4,000 | £20,000 |
| Age requirement | 18-39 to open | 18+ |
| Property price limit | £450,000 | No limit |
| First-time buyer only? | Yes (for property use) | No restriction |
| Withdrawal penalty | 25% if not for property or retirement | None |
| Must hold for | 12 months minimum | No minimum |
| Interest rates | Varies (typically 4-5%) | Varies (typically 3-5%) |
The LISA Bonus Advantage
The 25% bonus is significant over time:
| Years saving | Your contributions | Government bonus | Total (before interest) |
|---|---|---|---|
| 1 year | £4,000 | £1,000 | £5,000 |
| 2 years | £8,000 | £2,000 | £10,000 |
| 3 years | £12,000 | £3,000 | £15,000 |
| 5 years | £20,000 | £5,000 | £25,000 |
Plus interest on the full balance including the bonus.
When the LISA Is the Better Choice
Choose a LISA if:
- You’re aged 18-39 (must open before 40th birthday)
- The property will cost under £450,000
- You’re a first-time buyer (never owned property)
- You can leave the money for at least 12 months
- You’re confident you’ll use it for a house or retirement
When a Cash ISA Is Better
Choose a Cash ISA if:
- You might buy a property over £450,000 (common in London/South East)
- You’re not sure you’ll buy within the next few years
- You might need the money for something else — no penalties
- You’re over 39 and can’t open a LISA
- You want to save more than £4,000 per year in one account
- You’ve owned property before (not a first-time buyer)
The Best Strategy — Use Both
For most first-time buyers, the optimal approach is:
| Account | Amount per year | Purpose |
|---|---|---|
| LISA | £4,000 (max) | Get the full 25% bonus |
| Cash ISA | Remaining savings (up to £16,000) | Flexible top-up with no restrictions |
This gives you the bonus and flexibility.
The LISA Penalty Trap
If you withdraw LISA funds for anything other than a first home (under £450,000) or retirement (age 60+):
| Your money in | Bonus added | Total balance | Penalty (25%) | You receive | Net loss |
|---|---|---|---|---|---|
| £4,000 | £1,000 | £5,000 | -£1,250 | £3,750 | -£250 |
| £12,000 | £3,000 | £15,000 | -£3,750 | £11,250 | -£750 |
| £20,000 | £5,000 | £25,000 | -£6,250 | £18,750 | -£1,250 |
You actually lose money — the penalty takes back the bonus plus 6.25% of your own contributions.
Decision Flowchart
- Are you a first-time buyer aged 18-39? → If no, Cash ISA only
- Will the property cost under £450,000? → If not sure, use both (LISA + Cash ISA)
- Can you lock the money away for 12+ months? → If no, Cash ISA only
- Can you save more than £4,000/year? → Put £4,000 in LISA, rest in Cash ISA
LISA vs Help to Buy ISA
The Help to Buy ISA closed to new applicants in November 2019. If you have one:
| Feature | LISA | Help to Buy ISA |
|---|---|---|
| Bonus rate | 25% | 25% |
| Annual max contribution | £4,000 | £2,400 (£200/month) |
| Maximum bonus | £1,000/year (no lifetime cap) | £3,000 lifetime |
| Property limit | £450,000 | £250,000 (£450,000 London) |
| Bonus paid | Monthly into account | At completion (solicitor claims) |
| Can transfer to LISA? | Yes | Yes (one-way) |
If you still have a Help to Buy ISA, transferring to a LISA is usually better.
Related Guides
- Lifetime ISA Guide — full LISA rules
- LISA vs Help to Buy ISA — detailed comparison
- ISA Guide — all ISA types
- First-Time Buyer Guide — getting on the property ladder