Is this the Isa offer of a lifetime or a bad idea?

ANYONE wanting to save a deposit to buy their first home should consider putting money into a Lifetime Isa – and earn a 25 per cent bonus.

Laura Suter, head of personal finance at wealth manager AJ Bell, says: ‘The main reason for taking out a Lifetime Isa is to get on the property ladder. You can choose to put money into stocks and shares or cash. But if you are planning to save for at least five years then stocks and shares are a much better option if you want your plan to grow in value.’

Lifetime Isas cannot be used for purchases made within 12 months of the Isa being opened.

Investment-based Lifetime Isas are offered by Hargreaves Lansdown, Moneybox, Nutmeg and AJ Bell. Savers under the age of 40 can open a Lifetime Isa. For as long as you are under 50, the Government will chip in £1 for every £4 you save, giving you a £1,000 bonus on the maximum £4,000 a year you can save. Two people buying together can each use their Isa as a deposit. But whether buying individually or as a couple the value of the property must not exceed £450,000.

But be aware that you may end up worse off if you cash in the Isa without buying a first home.

This is because a 25 per cent penalty applies to the amount withdrawn in this case. So if you paid in £1,000 and received the £250 Government bonus, you would have accumulated £1,250, assuming no investment growth.

But if you then withdrew the money without using it for a suitable home deposit the 25 per cent penalty would apply to the £1,250, leaving you with £937.50 – £62.50 out of pocket. Alternatively, the Isa can be used to save for later life, as the cash can also be taken out at the age of 60.