Martin Lewis money saving advice on Lifetime ISAs

The Money Saving Expert was speaking at this year’s Ideal Home Show when he gave listeners a quick lesson on Lifetime ISA’s.

He explained: “If you are 18, 19, 20 up to 40, or your child or your grandchild is 18 up to 40 and they have never bought or owned a house in any way, get them to put £1 in a lifetime ISA.

“One pound, because then you have opened your lifetime ISA and then you started the clock ticking for that one year so that after a year if then they decide they want to use it, they can put £4,000 in and they can get the bonus instantly. So get the clock ticking now.”

He previously told viewers of the Martin Lewis Money Show Live on ITV that you get a 25% bonus on your savings when you put money into a Lifetime ISA (LISA) account.

You can put up to £4,000 into a LISA each year, meaning you could receive £1,000 completely free.

However, you have to use any money put into a LISA on your first property or on your retirement.

Martin explained there were “some issues with the lifetime ISA” to listeners at the Ideal Home Show.

He said: “The first one being if you take the money out for any other reason than buying your qualifying first-time property, or you leave it until you're age 60, you pay a penalty.

“Now here's how the penalty works. You know you've got a 25% on the way in. You lose 25% on the way out.

“Now that sounds like you get back what you put in doesn't it? But let's just do a very simple maths again here.

“I've got 100 quid; it goes up by 10% How much have I got 110. If 110 goes down by 10% How much have I got? 99.

“So goes up by 10 goes down by 10. I've got less than I started with goes up by 25 goes down by 25. I have 6.25% less than I started with.

“So, there is an effective 6.25% penalty on withdrawing your money if not for buying a house if not for saving until you're in retirement which means the lifetime ISA has some risks applied to it.”