A handy help from the help to buy (ISA)

Help to Buy cartoon

The Help to Buy (H2B) scheme ends on 31st November after being active for four years since its release in December 2015.

With over £285million* (as of March 2019) in bonuses paid out the scheme has proved quite popular.

However, with all good things there must come an end; but unlike an ice cream or a nice cold beer, the H2B ISA has a nice little prologue that may prove to be even beneficial than the main story: the Lifetime ISA.

The successor to the H2B, the Lifetime ISA (or LISA), allows you to pay in up to £4,000 a year with a 25% bonus top up paid directly into the account 4-6 weeks after the deposit is sent. One of the major downsides with this new product comes with the withdrawal fee; if you wish to withdraw any money in your LISA for any reason other than buying a house or after you are 60+ years of age, you will incur a 25% fee on the overall value – so 6.25% of the monies you have actually contributed.

For more information on the LISA, this link to MoneySavingExperts guide should provide all you need to know.

Despite the looming deadline of its impending departure, the H2B Isa still has its uses where interests rates have fallen short in recent years.

Any funds held in a H2B account are held in cash, and as we know, interest on cash in the bank since the 2008 crash have been abysmal. But the H2B account usually provides its owner with significantly better interest rates than any other cash ISA, or indeed any other easy access savings account, currently available (up to 2.58% with Barclays and 2.5% with Nationwide).

“But AMM, isn’t the H2B just for purchasing your first property?”

“Well, yeah…kinda.”

However, as there is no withdrawal feel – like the LISA – you could effectively use the H2B as a substitute cash saver, withdrawing any money in the H2B account whenever you see fit (while being aware of the limitations).

With a £1,200 initial deposit and £200 a month thereafter, the H2B provides a fair alternative to the measly rates you’re currently getting on your cash.

Furthermore, despite its closure at the end of November, the H2B product will still be open to those who have already opened an account for the next 10 years, as long as it is opened before the deadline has passed. It’s important to note that, if you’re using your H2B this way and not for a first home, you will obviously not receive the 25% bonus.

A regular saver or high interest debit account may still be a better option, but if you want less faff, and for any additional cash holdings you have, or if you want to keep your cash within the ISA wrapper, a H2B ISA, being used a cash account, may be worth your consideration.

 

Source

*https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/820611/Final_Official_Statistics_Publication_-_July_2019.pdf

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