Skipton launch the UK's first cash Lifetime ISA

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From Thursday June 8th, customers will be able to open Skipton's Lifetime ISA (LISA) online with a deposit as small as £1, whereupon they'll begin earning an annual interest rate of 0.5%.

Not only that, but the terms of the LISA - first announced in April 2016 - mean savers can receive a Government bonus of £1,000 for every £4,000 they deposit each year, up until they reach 50 years of age.

However, as good as the LISA may be for first-time buyers and the self-employed, those with a workplace pension or who are looking to save larger sums of money will be better off with other savings products.

Cashback

In addition to the Government bonus of 25% for all annual deposits, Skipton have revealed that anyone who opens a LISA with them and then takes out a mortgage with the building society will receive a £250 cashback.

Skipton claim that it's with such a cashback - but more importantly with the Government top up - that customers saving up to purchase a first home will end up with an above-average deposit.

The example they provide is of a 25 year old who, in saving the maximum possible amount of £4,000 a year until his or her 33rd birthday, will enjoy a fund of approximately £40,776.53.

Yet in theory, even bigger deposits than this could be saved, since the LISA is open to anyone aged between 18-40.

As the table below shows, an 18 year old could potentially have a deposit of roughly £89,752.62 by the time they reach their 33rd birthday, at least in the highly unlikely event that they have £4,000 to spare every single year.

Limitations

Of course, while this makes the LISA sound like an appealing prospect, at least in theory, the account comes with a number of restrictions.

For one, the 25% Government bonus is available only to those using it to purchase a home valued under £450,000, or to those who first withdraw money from it after their 60th birthday.

If neither of these conditions are satisfied, then savers will not only lose the Government bonus and the interest attached to it, but will also be hit with a penalty equal to 5% of the account's value.

It's precisely this limitation that makes the LISA less of an attractive deal for those who might need to access their savings before their 60th birthday.

And conversely, the £4,000 cap on annual deposits - as well as the fact that the Government bonus ends for savers once they turn 50 - means that people who work full-time will be able to save more for their retirement with a workplace pension.

Similarly, the LISA has a maximum savings total of £128,000 (including the 25% top up), so anyone who plans to save more for their retirement than this amount would be advised to stick with a pension, which analysts and advisers have often said is the best way to save.

A new generation

Still, these qualifications aside, the LISA remains a good deal for anyone looking for their first home, or for people with less regular work who aren't eligible for a workplace or auto-enrolment pension.

As Kris Brewster, Head of Products at Skipton Building Society, said, "The Lifetime Cash ISA could make a real difference to a new generation of savers by assisting them in getting a foot on the property ladder".

And at a time when the buyer-unfriendly housing market is showing some faint glimmers of becoming a little less expensive (or of become more expensive a little less rapidly), there just might be a few more first-time buyers than usual in the years to come.