The lifetime ISA, which was only launched last year, is the subject of much debate within the investment community. Many investors believe that it is too complicated, too inflexible, and generally just too much hassle. On the other hand, others believe that it is a genuinely attractive savings vehicle.
Looking at the pros and cons of the account, I can see both points of view. While the account is quite inflexible, the investment bonuses linked to contributions are no doubt generous. As a result, the lifetime ISA is likely to suit some investors more than others.
Personally, after much consideration, I recently decided that the lifetime ISA was suited to my own situation and investment requirements. As a result, I opened an account with Hargreaves Lansdown and invested the full £4,000 annual allowance before the 5 April deadline. Here’s a look at why I took the plunge.
I’m eligible
For starters, given that the lifetime ISA is only open to 18-39 year-olds and I’m in my late 30s, I figured it was a sensible move to open an account now before it’s too late and I’m no longer eligible in a few years’ time.
Spare cash
Second, I’ve had a pile of cash sitting on the sidelines for a while now that I’ve been waiting to put to good use. I’m happy to invest it for retirement, so I figured the lifetime ISA was a sensible place to park it, given the bonuses on offer.
The lifetime ISA is a little bit inflexible in that funds contributed to the account must be kept there until the investor either buys their first property, or turns 60. Given that I already own property, that means I’ll have to keep the funds in the account until I turn 60. While that’s restrictive, it’s fine with me as I’ll be using this account as a retirement savings vehicle.
It’s worth pointing out here that I also have a stocks & shares ISA in which I mainly invest in dividend stocks. I plan to also hold this account until retirement, however this ISA doesn’t have the age restriction, so if I did want to retire early, I could always withdraw capital from this account.
25% return
Next, let’s talk about the 25% bonus on offer from the government, as this is obviously the main attraction of the account. For me, a 25% risk-free bonus on my invested capital was simply too good a deal to turn down. I’ve invested the full £4,000 allowance, so I should receive a £1,000 bonus in April. I figure that if I can continue adding to the account every year up to age 50, the bonuses from the government should really propel the portfolio higher.
Tax-free gains
Lastly, the other main appeal of the lifetime ISA for me was that, like other ISAs, any capital gains or income within this account are tax-free. That’s a huge advantage when it comes to building long-term wealth as taxes can seriously detract from investment returns over time.