Lifetime ISAs and Cash ISAs are both tax-efficient ways to save money, but there are some differences between them.

Lifetime ISAs (LISA) allow you to save up to £4,000 each tax year towards your first home, or retirement. The government will then boost your savings by 25%, up to £1,000 each tax year. You’ll also earn interest if you opt for a Cash Lifetime ISA, or potential investment gains if you go for a Stocks and Shares Lifetime ISA. If you withdraw your funds from your LISA to use for something other than an eligible home purchase or retirement, you’ll incur the 25% withdrawal penalty, which could mean you’ll get back less than you put in.

With a Cash ISA, you can save up to £20,000 each tax year, and use the funds for whatever you like. You’ll earn interest, but you won’t get a 25% bonus on your savings as this is only for the Lifetime ISA. If you go for an easy-access Cash ISA, you should be able to withdraw your funds easily but may have to wait 1-3 working days for your money to land in your account.

If you go for a fixed-rate Cash ISA, withdrawing funds before the fixed term is over could see you getting back less than you put in, or forfeiting some or all of the interest growth you received on your savings.

Just remember that across all your ISA accounts, you can only save up to £20,000 each tax year, and only up to £4,000 into a Lifetime ISA.

Tax treatment depends on individual circumstances and may be subject to change in the future. Must be 18-39 to open a LISA. Ineligible withdrawals may return less than paid in. Past performance is not a reliable indicator of future results, capital at risk.