Lifetime ISA rules on switching providers explained as savers see interest rates slashed

The Lifetime ISA has been available since April 6, 2017, and this account is a way of saving tax-free, in which eligible savers can get a 25 percent bonus from the government up to £1,000 per tax year.

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It means that for every £4 saved, the government adds £1, and this is up to £1,000 every tax year until the saver turns 50.

There is a limit as to how much can be saved in the account each tax year.

Only £4,000 saved in the account each tax year will qualify for the bonus, and this allowance is included in the £20,000 annual ISA allowance.

The bonus is paid each month, meaning that savers can benefit from compound growth.

However, with interest rates dropping, some may want to ensure that they are getting the best possible rates on their LISA savings from their account provider.

Savers may have begun to feel the effects of the two successive cuts to the Bank of England Base Rate back in March.

The emergency measure was announced in response to the coronavirus crisis, seeing it drop from 0.75 to 0.25 and then 0.1 – a historic low.

The interest rates offered on a number of variable rate savings products have since been reduced.

As such, some may wonder whether they can move their money to a provider offering higher interest rates on the savings.

And, Lifetime ISA savers may wonder whether this is possible for them too.

There are rules surrounding paying into ISAs, as well as withdrawing money from a Lifetime ISA.

A withdrawal charge may apply if a person is taking money out of a Lifetime ISA if it’s not one of the following reasons.

These reasons are if the person is:

  • Buying their first home
  • Aged 60 or over
  • Terminally ill, with less than 12 months to live.

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Otherwise, a charge would be applicable, which aims to recover the government bonus on the original savings.

Currently, the charge is 20 percent following a change made by the government made during the coronavirus crisis.

It is set to go back up to 25 percent on April 6, 2021.

It’s possible to transfer Lifetime ISAs, as Rachel Springall, Finance Expert at Moneyfacts, explained.

She told Express.co.uk: “Lifetime ISA transfers work similarly to other ISAs transfers, so savers must ensure they transfer between providers and not attempt to withdraw funds themselves to move elsewhere.

“Savers do not have to stay with the same provider on outset, so it’s important to shop around if a better deal can be secured elsewhere.

“As always savers should check all the terms and conditions of their current LISA and any prospective option before they move.”

The government website details guidance from HM Revenue and Customs (HMRC) about transferring Lifetime ISAs between managers.

This guidance covers transferring Lifetime ISAs to a new Lifetime ISA manager, as well as to another type of ISA.

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