Barclays cuts Help to Buy ISA interest rates – but does return STILL beat Lifetime ISAs?

Help to Buy ISAs are no longer open to new savers, however those who opened an account prior to the deadline of November 30, 2019, can continue to save in them for some years. This month, Barclays Help to Buy ISA savers will see new interest rates come into effect.

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Curently, the interest rates on balances of £1 or more is a tax-free 2.55 percent per annum (2.58 percent AER) for this Barclays product.

However, from June 16, 2020, the rate will drop to 2.05 p.a percent (2.07 percent AER).

Commenting on the interest rates changes, Rachel Springall, Finance Expert at Moneyfacts, told Express.co.uk: “Whilst a decent interest rate shouldn’t be overlooked, the main draw to a Help to Buy ISA is the Governments boost to a savers deposit.

“First-time buyers might be struggling to build a large enough deposit for a home, so they may need a 25 percent boost to their savings more than they realise.

“If savers are unable to reach their required deposit then they may need to consult the bank of Mum and Dad as a last resort.

“Due to the Coronavirus pandemic and two base rate cuts during March, interest rates on savings accounts are falling and Help to Buy ISAs are not immune.

“In fact, there several cuts in the months to come as Help to Buy ISAs generally offer attractive rates.”

While the reduction in the interest rate may be a blow to savers who hold this account, Ms Springall pointed out that it may still exceed interest rates currently offered on other accounts.

The finance expert said: “The rate cut from Barclays bank is of course disappointing, but in comparison, someone’s existing Help to Buy ISA is likely to pay a better return than Lifetime ISAs (LISAs) too.

“The right choice between a Help to Buy ISA and Lifetime ISA does depend on the amount of money someone wishes to save, whether they want to earn a competitive interest rate and whether they may need to access they money early.

“Lifetime ISAs (LISAs) are designed to help savers build a nest egg for their first home or retirement, so these could be a good supplement to a traditional pension.

“Savers can put in £4,000 each year until they turn 50 and the Government will add a 25 percent bonus, up to a maximum of £1,000 per year.

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“A LISA is available to savers aged between 18 and 39.”

However, savers do need to be aware that a withdrawal charge applies if they withdraw money from the account for any other reason than some certain circumstances.

“The downside to a LISA is that there is a penalty to pay for access to the funds for any reason other than to purchase a first home or retirement, however the access penalty of 25 percent has been brought down to 20 percent in response to the Coronavirus pandemic,” she said.

“Accessing funds from a LISA should be a last resort though, plus while HMRC has backdated the reduced charge to March 6, savers may need to wait until later this month to get their money back as providers adjust to the change.”

So, for those looking to get a Lifetime ISA, what are the current top paying accounts out there?

“The best cash LISA rate today is 1.25 percent gross, on offer from both Moneybox and Nottingham Building Society,” said Ms Springall.

Elsewhere on the savings scene, earlier this week, financial journalist Martin Lewis commented on the current top paying one-year fixed savings account.

Having been asked by a caller about whether the top paying accounts they’d seen were safe, he replied: “The top one year fix at the moment is Atom bank.”

He went on to say that the current top one year fixes are Atom Bank at 1.3 percent. Kent Reliance at 1.25 percent, and RCI Bank at 1.25 percent – all of which are protected under the UK Financial Services Compensation Scheme [FSCS] up to £85,000 per person, per financial institution.

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