Help to Buy Isas, which offer a 25% bonus on savings when you buy a home, have largely been superseded by lifetime Isas. These accounts offer the same bonus, but with considerably better rates of interest.
Read on to find out why it is time to say goodbye to your Help to Buy Isa, and for details of the interest rates you could get by switching.
Help to Buy Isa savers miss out on £160 million in interest
Help to Buy (HTB) Isas and lifetime Isas both offer a 25% bonus on your savings when you buy a house.
Despite HTB Isas closing to new applicants in 2019, there are still around 2.2 million accounts open, with £5.5 billion saved into them.
An analysis by AJ Bell found that HTB Isa savers are collectively missing out on £160 million a year in interest by not switching to lifetime Isas.
Currently, the top-rate cash lifetime Isa pays 5%, and the top-rate investment lifetime Isa pays 5.09%, though this rate is variable.
By contrast, the market leading HTB Isa only pays 3.5%, and comes with restrictions. The next highest rate is just 2.75%.
Find out more:How do HTB Isas work?
HTB Isas were launched in 2015 to help aspiring homeowners save toward their first property.
They allow you to save up to £200 a month, with the government adding an additional 25% to the savings when you buy a first home priced up to £250,000 (or £450,000 in London).
HTB Isas come with limits. The maximum bonus you can get is £3,000, based on savings of £12,000.
Although HTB Isas are no longer open for applications, anyone with an existing account can save into it until December 2029, and claim a bonus until December 2030.
The benefits of a lifetime Isa
Lifetime Isas were launched in 2017. They allow you to save more money and earn a bigger bonus than HTB Isas.
Importantly, the bonus is paid into your account monthly, rather than when you buy a house, meaning you can earn interest on it as you save.
You can also save up to £4,000 a year into a lifetime Isa, meaning a maximum annual bonus of £1,000. Theoretically, you can save into a lifetime Isa for up to 32 years, resulting in a maximum bonus of £32,000.
There are some rules and restrictions you'll need to be aware of:
How to switch from a HTB Isa to a lifetime Isa
If you want to switch to a lifetime Isa, the first step is to find an account.
When you apply for the account, check if it will accept transfers from HTB Isas. If it does, you'll just need to complete a transfer form. If you do it this way, your annual Isa limit of £20,000 won’t be affected.
If not, you will need to withdraw the money from your HTB account and deposit it into the lifetime Isa account. You can only put £4,000 into a lifetime Isa each year, so you'll need to calculate how long it'll take to shift the balance.
Will lifetime Isa rules change in the Autumn Budget?
The Autumn Budget takes place later this month, and there has been speculation that lifetime Isa rules may be tweaked.
There are two possible changes to keep an eye out for. First, there have been calls to reduce the penalty for withdrawing money from your lifetime Isa if you're not buying a house.
Find out more:How to find the best rates on lifetime Isas
There are a range of competitively-priced lifetime Isas currently on the market.
The highest-paying cash Isa currently comes from Moneybox. It pays 5% AER and allows transfers from a HTB Isa.
It’s followed by Tembo, which also allows transfers and pays 4.3% AER.
Saving to buy your first home
You will usually need a deposit of at least 5% of the property price when buying your first home.
Making the most of your savings, budgeting and boosting your earnings where possible will all help you build up a deposit more quickly.
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