Choose a Lifetime ISA if you are 18 to 39 and saving for your first home costing £450,000 or less, or for retirement at 60 or later, because the 25% government bonus beats any interest rate. Choose a Cash ISA or Stocks and Shares ISA for everything else, because you can take money out at any time without a penalty. Many people use both: up to £4,000 a year in a Lifetime ISA, and the rest of the £20,000 allowance in an ordinary ISA.
This comparison covers the rules for 2026/27, worked examples of the bonus and withdrawal charge, and the changes on the way: a lower Cash ISA limit for under-65s from April 2027 and a proposed First Time Buyer ISA to replace the Lifetime ISA.
The three ISAs side by side
| Feature | Lifetime ISA | Cash ISA | Stocks and Shares ISA |
|---|---|---|---|
| Who can open | Age 18 to 39 | Age 18+ | Age 18+ |
| Yearly limit | £4,000 | Up to £20,000 | Up to £20,000 |
| Extra money | 25% bonus, max £1,000 | Tax-free interest | Tax-free growth |
| Access | Home, age 60, terminal illness | Any time | Any time (value can fall) |
| Penalty | 25% charge otherwise | None | None |
All three share one £20,000 allowance per tax year, so £4,000 in a Lifetime ISA leaves £16,000 for other ISAs. You can pay into a Lifetime ISA until the day before you turn 50. A Lifetime ISA can hold cash or investments depending on the provider. The ISA allowance tracker helps you keep count.
How the Lifetime ISA bonus and charge work
The government adds 25% to what you pay in, so £4,000 a year becomes £5,000 before any interest or growth. Over five years that is £5,000 of free money on £20,000 saved.
The catch is the 25% withdrawal charge on the whole amount if you take money out for any other reason. Because the charge applies to the bonus as well as your money, you get back less than you put in:
| Step | Amount |
|---|---|
| You pay in | £4,000 |
| Government bonus | £1,000 |
| Balance | £5,000 |
| 25% withdrawal charge | -£1,250 |
| You get back | £3,750 (a £250 loss) |
So only use a Lifetime ISA for money you are confident will go towards a qualifying home or stay put until 60. Our guide to Lifetime ISA withdrawal rules covers the exceptions in detail.
Saving for your first home
For a first-time buyer under 40, the Lifetime ISA is usually the best place for the first £4,000 a year of a deposit. The rules to plan around:
- The property must cost £450,000 or less, and you must be buying with a mortgage, through a conveyancer or solicitor. The price cap has not risen since the account launched, so check it against prices where you want to buy.
- Your first payment must have been made at least 12 months before you use the money.
- You must be a first-time buyer who has never owned a home anywhere in the world. Each buyer can use their own Lifetime ISA, so a couple can both put in £4,000 a year.
- If you are buying above £450,000, or not using a mortgage, a Cash ISA or Stocks and Shares ISA avoids the risk of the withdrawal charge.
Saving for retirement
If you are employed, a workplace pension normally beats a Lifetime ISA for retirement, because your employer adds money as well and higher rate taxpayers get more than 25% in tax relief. The Lifetime ISA can still be useful alongside a pension, especially for the self-employed or anyone who has already maximised their employer match, because withdrawals after 60 are tax-free while most pension income is taxable.
For flexibility before 60, a Stocks and Shares ISA is the better choice for long-term growth: there is no bonus, but no penalty either. See ISA vs pension for retirement for the trade-offs.
Cash ISA or Stocks and Shares ISA for everything else
For money you might need within about five years, such as an emergency fund or a car, a Cash ISA keeps your capital safe and pays tax-free interest. For money you will not touch for five years or more, a Stocks and Shares ISA has historically given better long-term returns, but its value can fall as well as rise.
The rules are changing. From 6 April 2027, under-65s will only be able to put £12,000 a year into Cash ISAs, with the rest of the £20,000 available for Stocks and Shares or Innovative Finance ISAs. People aged 65 and over keep the full £20,000 for cash. Our guide to Cash ISA vs Stocks and Shares ISA looks at how to split your allowance, and the savings accounts and Cash ISAs hub explains how to compare rates.
The proposed First Time Buyer ISA
HM Treasury consulted between 23 June and 18 August 2026 on a new First Time Buyer ISA to replace the Lifetime ISA. The proposals include opening it from age 18 with no upper age limit, paying the bonus when you buy rather than monthly, and removing the withdrawal charge. The limits, bonus rate and launch date have not been confirmed.
For now, nothing has changed: you can still open and pay into a Lifetime ISA, and existing accounts continue under the current rules. If you are close to the age limit and would benefit, waiting for a scheme that does not yet exist could mean missing out on bonuses you could claim today. We will update this page when the government publishes its response.
Which should you choose?
- Under 40, buying your first home under £450,000 within a few years: Lifetime ISA for £4,000 a year, Cash ISA for the rest of your deposit.
- Employed and saving for retirement: workplace pension first, then a Stocks and Shares ISA or Lifetime ISA on top.
- Saving with no fixed purpose: Cash ISA for short-term money, Stocks and Shares ISA for the long term.
- Over 40: you cannot open a Lifetime ISA, so use ordinary ISAs and your pension.
Use the savings goal calculator to work out how much a month you need for your deposit, and SYM to make putting that amount aside a daily habit.
Frequently asked questions
Can I have a Lifetime ISA and a Cash ISA at the same time?
Is a Lifetime ISA better than a normal ISA?
What happens if I withdraw from a Lifetime ISA early?
Is the Lifetime ISA being scrapped?
What is the Lifetime ISA house price limit?
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