I’m an aspiring first time buyer with a £50,000 deposit currently built up.
I have £15,000 in a Lifetime Isa with the 25 per cent government bonus included.
About £20,000 has been gifted to me by my mum and dad which is currently sitting in my bank’s savings account paying 2.25 per cent and I have an additional £15,000 I have saved up myself which is sitting in my bank’s cash Isa deal paying 3 per cent.
The money is all good to go and can be withdrawn without penalties.
Saving for a deposit. Our reader has their cash separated in three different products.
Unfortunately, I’m not quite yet at the stage where I can afford the area I’m looking to buy in, but I think after another year of disciplined saving I should be.
In the meantime, what should I do with my deposit money? Would moving it around hinder a potential mortgage application? And if not, where would be the best place to keep it while I try to find something to buy?
Ed Magnus of This is Money replies: It sounds like you’re in a great position and that you have been perfectly sensible about where you have held the money.
Well done for using a Lifetime Isa. This is a great option for most people saving towards a deposit for their first home.
Savers under the age of 40 can open a Lifetime Isa (Lisa) and until they hit 50, and the Government will chip in £1 for every £4 they save, giving a £1,000 bonus on the maximum £4,000 a year they can save into it.
Boost: Savers under the age of 40 can open a Lifetime Isa and get a 25% government bonus.
The main drawback is that the value of the property must not exceed £450,000, but I am sure you are aware of that.
Assuming your Lisa is in cash rather than investments, if you still have a year until you’ll be able to buy, then it could be worth checking if you have the best rate on the market.
Moneybox currently is the current market leader, paying a 3.5 per cent on its cash Lisa deal.
It says it accept digital transfers in from most providers, so this could be a worthwhile move to explore.
> Read our guide to Lifetime Isas
In terms of the cash Isa deal, you’re on a very competitive rate. The best easy-access cash Isa rate on the market currently pays 3.45 per cent, so transferring your cash Isa to a market leading deal will only add 0.45 percentage points of interest.
On £15,000 of savings that equates to £69 of extra interest over one year. If you are prepared to lock the money away for a year, you could get as high as high as 4.25 per cent, which could mean an extra £194 in interest over the next year.
– Check out the best cash Isa rates here.
In terms of your mum and dad’s gift that you currently hold in easy-access savings earing 2.25 per cent, you could do quite a bit better.
Best accounts at a glance
There are none that beat inflation this month, however, make sure you shop around for the best returns possible.
Easy-access: Chip – 3.71%
One-year fixed-rate: Vanquis Bank – 4.81%
Two-year fixed-rate: Al Rayan Bank – 4.85%
Best easy-access cash Isa: Shawbrook Bank – 3.45%
The average easy-access rate is currently 2.02 per cent, according to Moneyfacts so you’re doing better than the average.
However, the best deal pays 3.71 per cent. The savings and investment app, Chip, has an instant access deal without restrictions, which is backed by the FSCS.
– Check out the best easy-access savings rates here.
Although rates may change, if you leave £20k sitting in your bank’s easy-access deal paying 2.25 per cent, you’re on course to earn £454 over the next year.
If you move it to Chip’s deal paying 3.71 per cent, you’ll be on course to earn £754 over the next year.
If you are confident that it’ll take you another year, you could also opt to put the money in a one-year fixed rate deal.
The best one-year fixed rate currently pays 4.81 per cent. – but be warned – you won’t be able to access your money until the 12 months is up.
– Check out the best fixed rate savings accounts here.
14-year high: Savings rates are higher than they’ve been for years. But make sure you’re getting an above average return at least.
However, bear in mind that if you’re a higher rate taxpayer, your tax free savings allowance only allows you to earn up to £500 tax-free.
To avoid being taxed on anything above that amount it may make sense to add some of your savings to your Lisa or cash Isa.
If you have another year to save, then maximising your Lisa contribution is a no brainer given the 25 per cent government top up.
To help in giving our reader the best answer possible we spoke to Brian Byrnes, head of personal finance at Moneybox.
What should they do with their deposit?
Brian Byrnes replies: First of all, congratulations on building up such a large deposit. You have saved a considerable amount yourself which is a real achievement given the cost of living crisis.
When it comes to your deposit, the really important thing is to keep it easily accessible.
You don’t want to lock these funds away in search of a higher rate while you are actively looking for a property and you certainly don’t have the time horizon to be investing these funds.
The good news is that, in contrast to the last decade, you can get some return on your funds now while keeping them instantly available.
Moving your funds in search of a better rate won’t necessarily impact your ability to get a mortgage, though moving them excessively may raise questions from your lender.
You’ll most likely be asked to show your bank statements to your lender and if the deposit funds are new to your account, you will likely be asked to document where the funds have come from, increasing your admin.
Given the interest rates you are currently getting on the funds are towards the top end of the market, it may be worth keeping them where they are if your purchase is imminent.
One thing to consider with your deposit is whether you can avail of another years Lifetime Isa bonus if you are going to delay your purchase.
You may be able to get another £1,000 free top up from the government by moving £4,000 into your Cash LISA this tax year.
Crucially these funds would still be available for your house purchase when needed.
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