Cash versus investment Lifetime ISAs – which is best for you?

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Investment LISAs come with more risk and reward than cash Lifetime ISAs

A cash LISA is like an ordinary savings account where you earn interest at a specific rate. The rate can go up or down as there are currently no fixed-rate cash Lifetime ISAs. With Investment Lifetime ISAs you can invest in cash, funds, and stocks. It is possible to get better returns by investing in stocks and funds as opposed to cash, but as with all investing there is risk involved and it is possible to lose money if the investments you pick do not perform well.

Pros of stocks and shares LISAs:

  • There is the potential to earn more with a stocks and shares LISA than with a cash LISA.
  • They can be a better option if you’re investing your money long term (five years or more) as you’ll have time to make up for any losses.

Cons of stocks and shares LISAs:

  • You risk ending up with less money than you put in.
  • Charges can eat into your returns.

Pros of cash LISAs:

  • You get a guaranteed return through interest.
  • There’s no risk of losing your capital.

Cons of cash LISAs:

  • You might earn less than with a stocks and shares LISA.
  • The interest rate can go down, making your LISA less competitive.
  • You may need to check you’re in the highest paying account each year and transfer to a new provider if not.

Whether you should choose a stocks and shares Lifetime ISA or a cash one depends on your attitude to risk and how long you’re planning to invest your money for. If you want to save for your first home over a relatively short period, a cash LISA might be best for you. If you’re saving for your retirement it’s worth considering a stock and shares LISA.

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