If you hope to buy your first home after university, opening a Lifetime ISA (LISA) early can be worthwhile — even if you cannot afford to save much yet.
A LISA lets you save up to £4,000 each tax year, with the government adding a 25% bonus.
| You save | Government adds | Total |
|---|---|---|
| £500 | £125 | £625 |
| £1,000 | £250 | £1,250 |
| £2,000 | £500 | £2,500 |
| £4,000 | £1,000 | £5,000 |
The money can normally be withdrawn without penalty to:
- buy your first home, costing no more than £450,000
- withdraw from age 60
For a first-home purchase, the LISA must have been open for at least 12 months before it can be used.
Why open one at university?
The 12-month rule makes opening one early useful. You could open a LISA and make a small initial contribution while studying, starting the clock even if you plan to save seriously once you graduate.
If you later contribute the full £4,000 each year, the government bonus can add £1,000 annually towards your deposit.
The major catch
A LISA is not a good emergency savings account.
Withdraw money for most reasons other than an eligible first-home purchase or after age 60 and there is normally a 25% withdrawal charge. Because that charge applies to the entire amount withdrawn, you can actually receive back less than you originally contributed.
You should therefore keep emergency savings elsewhere.
Cash or Stocks & Shares LISA?
If you're hoping to buy within the next few years, a Cash LISA is generally the safer choice because your deposit isn't exposed to stock-market falls.
A Stocks & Shares LISA may make more sense when the money is being invested for a much longer period, particularly for retirement.
So, should you open one?
Probably yes if you're a first-time buyer and expect to buy a property within the £450,000 limit. Even opening one with a small amount while at university starts the 12-month qualifying period.
But don't put money into a LISA that you may need for rent, food or emergencies. The bonus is valuable precisely because the account is designed for long-term goals, not everyday savings.
One thing to watch: the government is currently consulting on replacing the LISA with a new first-time-buyer ISA in future. For now, however, the existing LISA rules remain in place.
