Trying to get on the property ladder?
Your guide to low-risk saving.
The Bank of England has cut interest rates for the second time this year - welcome news for first-time buyers after years of rising mortgage costs and spiralling house prices.
But it is still tough. More than half of first-time buyers still rely on the so-called bank of mum and dad to get on the property ladder, with an average of £55,572 given in loans and gifts last year, according to estate agents Savills.
Are you familiar with the Lifetime ISA (LISA)?
The lifetime Isa (Lisa) is a tax-free savings or investments account designed to help those aged 18-39 at the time of opening to buy their first home or save for retirement. The main selling point of lifetime Isas is the generous 25% bonus the government pays on your savings when you come to use them, up to a maximum of £32,000 if you save for many years.
You can put in up to £4,000 each year, until you are 50. You must make your first payment into your ISA before you are 40. When you turn 50, you will not be able to pay into your Lifetime ISA or earn the 25% bonus. Your account will stay open and your savings will still earn interest or investment returns.
The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. Interest will also be earned on your balance, tax free. You can hold cash or stocks and shares in your Lifetime ISA or have a combination of both.
The Lifetime ISA limit of £4,000 counts towards your annual ISA limit. This is £20,000 for the 2025 to 2026 tax year. You are able to pay into one Lifetime ISA in each tax year, as well as a cash ISA, stocks and shares ISA, and an innovative finance ISA, within the overall ISA limit.
You’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (also known as making an unauthorised withdrawal). This recovers the government bonus you received on your original saving.
The government however allow you to use this scheme to save for later life. You can take your savings out of a Lifetime ISA when you’re 60 or over without the consequences of a withdrawal charge. The savings and bonus can be accessed tax-free.
Cash ISAs
With a Cash ISA, there is also no tax to pay on any interest earned. Furthermore, the interest generated within a Cash ISA does not count towards your Personal Savings Allowance. This makes it a particularly valuable option for individuals expecting to earn significant interest, as it enables them to shield more of their savings from tax.
Like standard savings accounts, there are several types of Cash ISAs available, each catering to different needs:
Easy Access Cash ISAs
These accounts offer flexibility, allowing you to deposit and withdraw funds at any time without penalty. They are ideal for savers who want unrestricted access to their money.
Notice Cash ISAs
With these accounts, you are required to provide advance notice—typically a set number of days—before making a withdrawal. They may be suitable if you anticipate needing access to your funds but can afford to wait.
Fixed Rate Cash ISAs
These accounts usually offer higher interest rates compared to easy-access or notice Cash ISAs. However, early withdrawals often incur an interest penalty, so they are best suited to those who are confident they will not need access to their funds during the fixed term.
Fixed-term savings accounts
Fixed-term savings accounts typically require you to commit your funds for a set period, during which withdrawals are not permitted. In return, you benefit from a guaranteed interest rate throughout the term. For this reason, it is advisable to only deposit funds that you are certain you will not need access to during the fixed period.
If you are looking for the certainty of a fixed rate but still want the option to access your funds, a Cash ISA may be a suitable alternative. By law, providers must allow withdrawals from Cash ISAs, although this often comes with a fee or interest penalty.
Structured Deposits
Structured deposits work in a similar way to fixed savings accounts; in that they have a fixed term and the deposit is held with a bank. When you open the product you’ll be expected to commit a lump sum of money for a certain length of time – typically a minimum of two years, but ideally five years or more – and won’t be able to add more or access your funds until maturity (you may be able to withdraw your money early if you need, but in this case the guarantee will not apply, so you may get back less than you put in).
However, unlike fixed bonds, structured deposits sacrifice guaranteed interest payments for potentially higher returns that are based on stock market performance. This means you may receive a higher interest rate than you would get from a fixed rate bond, but there is a risk you’ll get no interest at all. However, you should still receive your initial deposit back, even if the stock market has fallen.
Note that there are different types of structured deposits available. Some will only pay interest if the index rises, whereas some “defensive” structured deposits offer a lower interest rate which can still be paid if the index hasn’t performed, provided it doesn’t fall by more than a certain amount.
Different types of structured deposit product will base their returns on the performance of different indices, too. This could be an equity index (such as the FTSE 100), certain bonds or even a single share, or in some cases they’ll be linked to a floating interest rate (such as base rate).
It should be noted that the above are low risk savings options which may be suitable for short to medium term savings – eg for a property deposit. If saving for the long term (for example retirement), then investments and/or pensions may be a better option than cash, as investments generally outperform cash over the long term and market volatility becomes less of an issue.
Need Help Navigating Your Options?
If any of the above options may be of interest to you, please do not hesitate to get in touch. One of our advisers will be happy to assist you, helping you determine which products best suit your circumstances and objectives, and informing you of any associated risks.