Saving for your first home: the most popular ways

Hero image saving for first home

Getting the keys to your first home is a feeling you’ll never forget, and putting your money in the right savings accounts can help you save faster and more efficiently. Take a look at some of the most popular ways to save.

LISA (AKA Lifetime ISA)

A LISA is a type of fixed savings account for your first home – which you must live in – or retirement, where the government gives you a 25% bonus, or £1 for every £4, on the money you put in. You can either do this as a lump sum or in monthly instalments, with an annual maximum amount of £4,000. For example, to get the max amount of interest, you would need to pay in £333 per month towards your first home or retirement. If you withdraw for any other reason, you will have to pay a penalty fee.

The LISA is a popular savings option due to the 25% tax-free bonus given to you by the government per year, up to £1,000. For example, if you put the maximum amount of £4,000 in per year, you would get a £1,000 bonus.

To open up a LISA account, you must be between 18 and 39. One thing to note is that you are only able to access your funds, and gain the bonus, after one year of opening it. You cannot pay into this type of ISA – or get the 25% bonus – after you turn 50. If you and your partner are looking to buy a home together, you could collectively get a maximum annual bonus of £2,000 when you both open individual LISA accounts.


Help to Buy ISA

Applications to open a Help to Buy ISA closed in 2019. However, here’s more information on them if you already have an account.

An important thing to note when talking about savings accounts is that you can have both a Help to Buy ISA and a LISA, however, you can only get the government bonus on one of them.

To open a Help to Buy ISA, you must be a first-time buyer. You must not be a cash buyer, and unlike other government schemes, this is not restricted to only new builds.

The government will top up your amount by 25% up to £12,000. This means that if you save the full £12,000, you will get a government bonus of £3,000. This bonus can be claimed until November 2030.

You can pay in up to £200 a month, with the government topping up your account when you buy your first home.


Regular savings account

Similar to current accounts, savings accounts offered by banks are the most straightforward way to save, with you being able to withdraw your money at any time. It is important to note, however, that because of this simplicity, these accounts typically have low interest earned, so you get minimal additional money added by the bank. This additional money will depend on the percentage interest of your chosen account, so it is beneficial to look around for the best deal, which will be savings accounts with the highest interest rates.

Premium bonds are similar in their straightforwardness; however, you do not get any added interest on your total amount; this is replaced with the chance to win money in a monthly prize draw. Prizes range from £25 to £1 million. The more money you have in, the higher the chance of winning the big prizes. You can take out any amount of money from your account at any time.

Savings account

Fixed-rate savings bonds

If you have a large sum of money that you want to use towards your house deposit, you may want to consider putting it in a fixed-rate bond, also known as a fixed-term deposit. Here, you agree to put your money into a fixed-rate savings account and not withdraw it for a set period of time. This period of time can range from one to three years, but can be as long as five. While your money is in that account, a fixed rate of interest is added, with the total amount of interest added into your sum of money once you withdraw it. This interest is taxable in a fixed-rate bond; fixed-rate ISAs offer a tax-free alternative. In summary, at the end of the fixed time period, you’ll get all of your money back plus the interest you’ve earned. However, you cannot withdraw money until it’s “mature” (at the end of the time period), otherwise you’ll lose interest on it.

As with any financial decision, it is important to contact your chosen bank to discuss your options to see which one is right for you.

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