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Lifetime ISAs: cash or stocks and shares?

Written by Frankie Entwistle, Digital Content Lead

If you're thinking about using a lifetime ISA to save for your first home, have you thought about whether to open one that saves in cash or one that invests in stocks and shares?

What is a lifetime ISA?

A lifetime ISA is an ISA with a difference - it's to help you buy your first home or save for retirement with a government bonus of 25% of everything you put away.

You can save or invest up to £4,000 of your £20,000 ISA allowance each year in a lifetime ISA. You'll receive a 25% government bonus on top of everything you save in a lifetime ISA up to that limit, as long as you use it to get on the property ladder or leave it there until you turn 60.

One of the important decisions you need to make when opening a lifetime ISA is whether to choose one that saves in cash or one that invests in stocks and shares.

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

Just like other types of ISAs, lifetime ISAs can be saved in cash or invested in stocks and shares.

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.

Find out more about when to save and when to invest.

What is a cash ISA?

Cash ISAs grow by earning interest, like current accounts do. They increase with interest rates, so when you see on the news that interest rates have dropped, that's bad news if your savings are in a cash ISA and your account's interest rate isn't fixed.

Risk-wise, they are fairly safe. The amount of money in your ISA can't go down so there's no risk of you ending up with less money than you put in.

However, inflation creates another risk for cash savings. As prices increase over time, you could find that the same amount of money can buy less when the time comes for you to withdraw it. If your money hasn't grown as much as prices have increased by, you wouldn't be able to buy as much despite your good saving intentions.

So, if your interest rate is lower than inflation then your money is essentially losing value over time.

What is a stocks and shares ISA?

Stocks and Shares ISAs aim to make money by investing in the stock market.

"Investing" typically means paying your money into an investment fund along with other investors' money. The investment fund is used to buy various different types of investments: things like shares in companies, property and corporate and government bonds.

Your money increases or decreases as the value of those assets changes. When you want to withdraw your money, you'll "sell" your shares at their current price.

Our Lifetime ISA is a stocks and shares ISA which invests in managed funds. That means you don't need to choose exactly where your money is invested. You have a choice of just two funds, one riskier than the other, and our fund managers do the hard work.

With stocks and shares ISAs, there is a risk that your money might not grow or might even fall in value and you could get back less than you put in. For this reason, we recommend only investing in stocks and shares if you plan to keep your money invested for at least five years as fluctuations in the stock market tend to even out over time.

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.

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, including:

  1. You must use the lifetime ISA to buy your first home or leave it invested until you turn 60 (otherwise you'll need to pay a government withdrawal charge, which can mean that you'll get back less than you've paid in)
  2. Your lifetime ISA could affect your entitlement to means-tested benefits.
  3. If using for retirement, in place of a pension, you could lose out on valuable employer contributions.
  4. If you are a first-time buyer looking to purchase your first home in the short-term, a cash lifetime ISA might be more appropriate.
  5. Your lifetime ISA can only be used to buy your first home after it has been open, with money in it, for at least 12 months.

Our lifetime ISA calculator can help you understand how much a OneFamily stocks and shares Lifetime ISA could grow over time.

If you're not sure whether a product is right for your needs, you should seek help from an independent financial adviser.

Can I have a stocks and shares lifetime ISA and a cash lifetime ISA?

Technically yes, but you can only open one lifetime ISA in each tax year and you can only pay into one each tax year. So you can't claim the bonus on two lifetime ISAs at the same time.

a phone displaying the performance graph of a stock.

Feeling inspired to start building up your deposit?

Choose an amount to pay in monthly and see what your Lifetime ISA could be worth in 5 years!


Lower performance

After 5 years
You've invested �2,200
Government bonus �500

Projected value

5 years

Higher performance

What do these numbers mean?

Please note: No more than £4,000 may be invested into a Lifetime ISA within a single tax year. This includes your initial investment and your monthly direct debit payments.

This projection shows how your lifetime ISA could grow with low, medium and high performance. Remember, projections are not a guarantee of future performance and you could get back less than you pay in.

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What is a lifetime ISA?

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Saving for retirement when you're self employed

As a self-employed person you don’t get automatically enrolled in a workplace pension. How can you save for retirement?

How to save for your first home faster

Tips and tricks to get your feet on the property ladder sooner.

Transferring a help to buy ISA to a lifetime ISA

If you already have a help to buy ISA, a lifetime ISA might be better suited to your needs.