Lifetime ISA:
Cash vs Stocks and Shares

Opening a Lifetime ISA is a big decision. One key decision you need to make is whether or not you choose a Cash or Stocks and Shares Lifetime ISA. 

Here at OneFamily we only offer a Stocks and Shares Lifetime ISA. However, it's important to understand the risks and potential rewards of a Cash Lifetime ISA in comparison to a Stocks and Shares Lifetime ISA before making a decision. With several Lifetime ISA products on the market, this guide has been designed to help you understand the difference between a Cash Lifetime ISA and a Stocks and Shares Lifetime ISA.

Cash or stocks and shares - what's the difference?


Money paid into a cash savings account earns interest and is protected. Cash savings are regarded as being safer than investing in stocks and shares but the returns over the longer term can be modest.

Whilst the account is protected and will not fall in value you should consider the effect that inflation could have on the spending power particularly over the longer term.

If the interest rate of the account doesn't rise at least at the same rate as inflation, the money in the account will not be able to buy as much in the future as it can today.


Stocks and shares

A stocks and shares Lifetime ISA, on the other hand, invests in the stock market, so it has the potential for greater growth than cash accounts over the long term.

However, this comes with a degree of risk. The value of stocks and shares can go down as well as up. Whilst this is normal for stocks and shares it does mean that you could get back less than you paid in.

Stocks and shares are usually considered a good option if investing over the longer term as it helps even out fluctuations in the stock market and provides good growth potential. 

With our Lifetime ISA, we have two funds that you can choose from. One has been designed for an investment term of at least five years and the second for an investment term of at least ten years.

How does each option perform?

Although money invested in a cash account will not decrease in value, cash accounts typically offer less potential for growth over the long-term than a stocks and shares account.

In fact, according to the Barclays Equity Gilt Study – the UK’s leading source of information on long-term market returns – stocks and shares have, overall, outperformed cash/building society accounts over every 18 year period during the last 50 years.*

Note: Please note that the information provided is for your reference only and are based on general market information, not our own data. These figures should not be considered an indication of future performance. The performance of individual funds will vary. 

* Source: Barclays Equity Gilt Study April 2018. Average annual real rate of return based on Barclays indices.

Other things to consider

Although the information above may be useful when considering your investment options, there are several other considerations you should take into account before deciding whether a stocks and shares Lifetime ISA is suitable for you:

  • whether you're happy for the money to be in a Lifetime ISA until you purchase your first-home or at age 60 for your retirement.
  • If you choose to withdraw your money before the age of 60 and not for the purchase of your first home, a 25% government withdrawal charge will apply on the amount withdrawn. This can mean that you will get back less than the amount paid in.
  • if you have savings this could affect your entitlement to means tested benefits.
  • if using for retirement, in place of a pension, you could lose out on valuable employer contributions.
  • if you are a first time buyer, looking to purchase your first home within the next few years, a cash Lifetime ISA may be more appropriate

Ultimately, it's down to you to decide what's right for you. If you're not sure whether a product is right for your needs, you should always take advice from an independent financial adviser. Please consider that with a stocks and shares investment product your capital is at risk. The value of your investment can go down as well as up. This means you may get back less than you put in.

Interested in finding out more?

If you're interested in finding out more about Lifetime ISAs and if one might be suitable for you,
click on the button below to find out about our OneFamily Lifetime ISA.

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