The help-to-buy ISA closed to new applicants last month, leaving first-time buyers with the one government-backed savings vehicle to consider going into the new year.

Launched in December 2015, existing savers into the help-to-buy ISA can continue to save up to £200 a month until 30 November 2029.

The deadline for first-time buyers to claim a government bonus of up to £3,000 that can go towards a first mortgage deposit is a day later - on 1 December 2030.

Help-to-buy ISA providers reported a late surge in interest as the deadline approached on 29 November 2019.

But for those who missed the boat, the lifetime ISA offers an alternative.

What is the lifetime ISA?

The brainchild of former chancellor George Osborne, the lifetime ISA allows people aged between 18 and 39 to save towards a first home or retirement.

Up to £4,000 can be contributed into a lifetime ISA each tax year and this sum forms part of the annual ISA allowance (£20,000 in 2019/20).

The government pays a 25% bonus on annual contributions until the saver's 50th birthday.

Individuals can choose to open a lifetime ISA to save as cash or invest in the stock market, where the value can rise or fall.

After an account has been open for a year, withdrawals are tax-free if they go towards a first home worth up to £450,000, or the saver is 60 years old.

Withdrawals for any other reason are usually subject to a 25% penalty.

How does it differ from help-to-buy?

Aside from the main similarity that both the help-to-buy and lifetime ISA offer government bonuses of 25%, subtle differences apply.

First, the lifetime ISA serves a dual purpose – to either save for a home or for retirement. The sole purpose of the help-to-buy ISA is in the name.

Savers who have a lifetime ISA have more options – they can invest in stocks and shares or cash, while the help-to-buy ISA is cash only.

The lifetime ISA offers a higher bonus (up to £1,000 every year contributions are made), compared to a £3,000 total bonus cap with help-to-buy.

A higher bonus correlates with the chance to make higher annual contributions (up to £4,000 a year) into a lifetime ISA, compared to £2,400.

Eighteen-year-olds who open a lifetime ISA in 2020 could earn up to £32,000 in government bonuses if they save the maximum yearly amount of £4,000 from the age of 18 to the age of 50.

Help-to-buy ISAs have better interest rates, however, with savers offered around 2.25% to open an account before last month's deadline. The best lifetime ISA interest rate available this month is 1.4%.

While that all sounds attractive, the greater benefits associated with the lifetime ISA come with greater limitations.

Penalties are in place for lifetime ISA withdrawals, whereas help-to-buy savers can access their ISA whenever they like without paying tax.

For example, lifetime ISA withdrawals that are not used to purchase a first home or after a 60th birthday are subject to a 25% government charge.

The lifetime ISA also has to be open for 12 months before it can be used to buy a first home, and that restriction does not apply to help-to-buy.

Does it make sense to transfer?

It is possible that the help-to-buy interest rates will continue to fall in 2020 following the closure of the scheme.

In some circumstances it may make sense to move your savings into a lifetime ISA, but make sure you review the performance of financial products like the help-to-buy ISA before making your decision.

Transferring can involve excessive exit fees and the loss of benefits, so it is wise to compare any charges involved before transferring savings from a help-to-buy ISA to a lifetime ISA.

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