Lifetime ISA interest rates and fees: what you actually earn
A Lifetime ISA lets you pay in up to £4,000 a year and the government adds 25%, up to £1,000. That bonus is worth more in year one than any savings rate on the market. The interest rate and fees still decide what the pot grows to after that. Here is how cash LISA rates work, what stocks and shares LISAs charge, and the rules that decide whether you keep the bonus.
How the LISA bonus and penalty work
You can pay in up to £4,000 a year. You must be 18 to 39 to open a Lifetime ISA, and you can keep paying in, and getting the bonus, until you turn 50. The government adds a 25% bonus on what you pay in, so the most bonus you can get in a tax year is £1,000. Your £4,000 counts towards your £20,000 overall ISA allowance. After 50 the account stays open and keeps earning interest or investment returns.
Take money out for any other reason and you pay a 25% withdrawal charge on the whole amount you withdraw, not just the bonus. That means you can get back less than you paid in. There is no charge if you are 60 or over, if you are terminally ill with less than 12 months to live, or if you use the money to buy your first home. For the home rule, the property must cost £450,000 or less and you must be a first-time buyer. You must buy at least 12 months after your first payment into the LISA, use a conveyancer or solicitor, and buy with a mortgage. You can use the full balance, including the bonus, towards the purchase.
The 25% charge makes a LISA a poor home for money you might need for anything else. The bonus is a real lift, but the early-withdrawal charge is sharp. A LISA works as a first-home or later-life pot, for money you can leave alone.
What interest rate does a Lifetime ISA pay?
A cash Lifetime ISA pays a variable interest rate set by the provider, the same way a savings account does. The rate can go up or down at any time. On 8 October 2026, the highest cash LISA rates listed by Moneyfacts were between about 4.5% and 4.75% AER. Several of those included a bonus rate that lasts only 12 months, and without it the underlying rates were roughly 2.8% to 3.6%.
The interest is the smaller part of the return. Pay in £4,000 and the government adds £1,000. Getting £1,000 on £4,000 from interest alone would take a rate of 25%. Then the interest works on £5,000, not £4,000. At 4.75% that is about £237 in the first year. If the rate falls to 2.8% when a 12-month bonus ends, year two earns about £147 on the £5,237 balance. (Simplified: this assumes the full £5,000 earns interest for the whole year.)
The number that surprises most people is the cost of withdrawing for the wrong reason. Take out that £5,237 for anything other than a first home, age 60 or terminal illness and the 25% charge is about £1,309. You would get back about £3,928, less than the £4,000 you paid in.
When you compare cash LISAs, look at the AER and whether part of it is a bonus that ends after 12 months. Check whether the provider accepts transfers in from another LISA (a transfer does not use your £4,000 allowance) and what the minimum deposit is. Rates change often, so compare on the day you decide, not from an old list.
Cash LISA vs Stocks and Shares LISA
Cash LISAs hold your money as a cash deposit and pay interest at a variable rate set by the provider. Stocks and shares LISAs invest your money in funds or shares, so the value can rise and fall. The main difference is time. Over a few years, a fall in value could eat into the bonus just when you need the money. Over many years, investments have historically had more time to recover from falls, though there is no guarantee.
| Feature | Cash LISA | Stocks and Shares LISA |
|---|---|---|
| Underlying | Cash deposit at the provider | Investment funds |
| Typical fee | Usually no account fee. Your return is the interest rate, which is variable | A platform or account fee (a percentage of your pot or a flat monthly charge), plus fund charges. Check each provider's published charges |
| Built around | Shorter time horizons, where you cannot afford the value to fall | Longer time horizons, where the value can rise and fall |
| FSCS protection | Up to £120,000 per eligible depositor | Investments can fall in value and that is not protected. If an investment firm fails and cannot return your money, the FSCS may cover up to £85,000 |
Verify each provider's current interest rate on cash LISAs and current platform fee on stocks and shares LISAs on the provider's website before opening.
How to compare Lifetime ISA providers
Fewer providers offer a Lifetime ISA than an ordinary ISA. Cash LISAs come from banks, building societies and savings apps. Stocks and shares LISAs come from investment platforms and investing apps. The charging models differ. Some platforms charge a percentage of your pot, some a flat monthly fee, and some app-based providers charge a subscription.
Because rates and fees change, the useful comparison is on the day you decide. For cash, compare the AER, any bonus rate that ends after 12 months, and the withdrawal terms. For stocks and shares, compare the platform fee, the fund charges and the funds on offer. Our guide to UK investment platforms and their fees sets out published charges side by side.
LISA vs pension for retirement
Both a LISA and a pension are tax-efficient retirement savings vehicles, but they interact with your other tax wrappers differently. A pension contribution comes out of pre-tax salary (via salary sacrifice) or basic rate tax relief; a LISA contribution is from post-tax income but gets the 25% government bonus on top.
A pension is usually more efficient for higher-rate taxpayers because of the tax relief, and is more flexible at retirement for income drawdown. A LISA is more flexible before retirement because you can withdraw it penalty-free for a first home. Many UK savers use both: pension for the bulk of retirement saving, LISA for the first-home deposit.
Where does this leave you? Start with when you will need the money and what it is for. A first home in the next few years, or retirement at 60 and beyond? The shorter the time, the more a fall in investment value could cost you just when you need it. The longer the time, the more the platform fee and fund charges compound against you, so the charges are worth checking line by line. Either way, the 25% bonus only stays yours if the money goes on a qualifying home, or stays put until you are 60. See your overall position
Educational use only. Not financial, investment, tax or legal advice.
Related guides: What is a Lifetime ISA? · What is an ISA? · Compare investment platform fees
Lifetime ISA FAQ
How much does the Lifetime ISA bonus pay?
The government adds 25% to what you pay in, up to £4,000 a tax year. That is up to £1,000 of bonus a year. You must open the LISA between 18 and 39, and you can keep paying in and getting the bonus until you turn 50.
What interest rate does a cash Lifetime ISA pay?
It pays a variable rate set by the provider, which can change at any time. On 8 October 2026 the highest cash LISA rates listed by Moneyfacts were about 4.5% to 4.75% AER. Some of these included a bonus rate for the first 12 months only, with underlying rates of roughly 2.8% to 3.6%. The 25% government bonus is paid on top of any interest.
Does a Lifetime ISA have fees?
Cash LISAs usually have no account fee. Your return is the interest rate. Stocks and shares LISAs usually charge a platform or account fee, as a percentage of your pot or a flat monthly amount, plus the ongoing charges of the funds you hold. On a £5,000 pot, a 0.45% platform fee is £22.50 a year. The biggest possible cost is the 25% withdrawal charge if you take money out for a non-qualifying reason.
What is the LISA withdrawal penalty?
If you take money out before 60 for anything other than a qualifying first home or terminal illness, you pay a 25% charge on the whole amount withdrawn. Because the charge is on the total, including the bonus, you can get back less than you paid in. Pay in £4,000, receive £1,000 bonus, withdraw all £5,000 and you get £3,750.
Can you have more than one Lifetime ISA?
You can hold more than one Lifetime ISA, but you can only pay into one in each tax year, and the £4,000 limit applies to it. You can transfer an existing LISA to another provider without using your allowance.
What happens to my LISA when I die?
The account ends and the money can be withdrawn with no withdrawal charge. Like other ISAs, it counts as part of your estate for inheritance tax.
Is the LISA bonus included in the £20,000 ISA allowance?
No. Your contributions count towards the £20,000 overall ISA allowance, so you could put £4,000 in a LISA and £16,000 in other ISAs in the same tax year. The 25% bonus does not count towards the £20,000.
Is the Lifetime ISA being replaced?
The government has consulted on a new First Time Buyer ISA to replace the Lifetime ISA for new savers. The consultation closed on 18 August 2026. No date has been set. Until the new product launches you can still open a Lifetime ISA, and existing holders can keep paying in under the current rules.
Educational use only. Not financial, investment, tax or legal advice.