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 Lifetime ISA that is saved in cash or invested in stocks and shares.

Cash or stocks and shares – what’s the difference?

It's important to understand the risks and potential rewards of saving in cash compared to investing in stocks and shares before you make a decision.


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.

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 you have two funds to choose from, one which invests 35% in company shares and 65% in fixed interest investments, and another which invests 100% in company shares. Fixed interest investments offer lower potential returns than company shares over the long term, but also come with lower risk.

How does each option perform?

Cash accounts typically offer less potential for growth over the long-term than a stocks and shares account. That said, investing comes with greater risk - as the value of your investments can shrink.

Things to consider

There are several other considerations you should take into account before deciding whether a stocks and shares Lifetime ISA is suitable for you:

  1. To benefit from the 25% government bonus you must use the Lifetime ISA to purchase your first home or for retirement
  2. 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the age of 60 and not for the purchase of your first home, a 25% government withdrawal charge will apply on the amount withdrawn.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.
  3. Your Lifetime ISA could affect your entitlement to means-tested benefits.
  4. If using for retirement, in place of a pension, you could lose out on valuable employer contributions.
  5. If you are a first-time buyer looking to purchase your first home in the short-term, a cash Lifetime ISA may be more appropriate.
  6. Your Lifetime ISA can only be used to purchase your first home after it has been open for 12 months.

Ultimately, it's down to you to decide. If you're not sure whether a product is right for your needs, you should always take advice from an independent financial adviser.

Important information

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.

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