Want £1,000 for free? You’ll have to act quickly

Edward Sheldon looks at the government bonus on offer from the lifetime ISA.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s not often that you get the chance to pick up £1,000, for free. However, if you’re aged between 18 and 39, and act quickly, that’s exactly what you can do. How is this possible? Through the lifetime ISA, which was launched last year. Here’s a look at how it works.

Free money

The lifetime ISA is a tax-free account open to 18-39 year-olds. The account allows you to contribute up to £4,000 per year, up to age 50, as part of your overall £20,000 ISA allowance. You can hold cash or stocks/funds in your lifetime ISA, or have a combination of both.

For every £4,000 you contribute, the government will add a 25% bonus to your savings. In other words, if you pay in £4,000, the government will hand you £1,000 for free. An instant 25% return on your capital should not be ignored.

Investors should note that not all financial services providers offer this ISA right now, however, it is currently available through Hargreaves Lansdown, Nutmeg and AJ Bell.

To pick up your free £1,000 for this year, you’ll have to act quickly, as the deadline is April 5. If you fund your account in time, you can expect to receive the bonus in April.

Sounds like a good deal, right? So what’s the catch?

The catch

They say there’s “no such thing as a free lunch,” and that term is highly relevant here. There are certain conditions that are attached to the lifetime ISA.

It has been designed to help investors either save for their first property or boost their retirement savings. So the catch is that the funds must be kept in the account until either you buy your first home (note the conditions here), or turn 60. If you withdraw your funds before this, you’ll be stung with a 25% charge, meaning you could potentially get back less than you put in.

Is it worth it?

Given the harsh withdrawal penalty, it’s worth considering if the lifetime ISA is suited to your situation and requirements, before opening an account. It will suit some investors, more than others.

For example, if you have a company-sponsored pension, and your employer matches your contributions, you may be better off saving for retirement through that pension. In contrast, if you’re self-employed and receive no company pension, the lifetime ISA could be an excellent savings vehicle.

In general though, from a retirement-savings perspective, the lifetime ISA does offer considerable appeal. Given that an 18 year-old contributing £4,000 per year up to age 50 could potentially get their hands on £33,000 from the government over time, there’s a lot of free money on offer. That kind of savings boost could really turbo-charge your retirement pot over the long term.

Personally, I plan to open a lifetime ISA this week, to sit alongside my stocks & shares ISA. I’ll contribute £4,000 before April 5, to capitalise on the £1,000 bonus from the government. From there, I’ll invest the £5,000 total as I usually do – across a portfolio of high-quality stocks, funds and investment trusts for the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »