Ultimate guide to maximising your income: The LISA (Lifetime ISA)

A Cheap Guy
5 min readDec 13, 2020

Earn £1000 per year tax-free! Maximise your passive income today with the LISA

Note that this content is optimised for the United Kingdom

Here’s a really good diagram from share a mortgage. In-depth explanation below!

What is LISA?

The LISA is known as the Lifetime ISA. You may have heard of other ISA’s such as Cash ISA, Stocks and Shares ISA etc. All the ISA (individual savings account) indicates is that any money earned is tax-free (usually up to a limit).

The LISA gives you up to £1,000 per year. The UK Government gives you 25% of what you put into your LISA. So, to get your maximum bonus of £1,000, each year you can put in up to £4,000 to net that £1,000 bonus.

Remember those savings accounts that offer 0.35% interest rates? Here it’s a whopping 25% return! It’s also guaranteed by the UK Government


Sounds too good to be true? What’s the catch?

The first obvious one is that it only works up to £4,000, over that amount you won’t be getting your 25% return. Those 0.35% savings accounts usually let you deposit much much more money.

Next, 3 criteria let you withdraw money from your LISA without charge:

  • buying your first home
  • aged 60 or over
  • terminally ill, with less than 12 months to live

If you don’t meet these criteria when withdrawing then you will have a 25% charge on the amount you withdraw. This works out to be a losing scenario for you.


I’ve invested £4,000 into my LISA, and obtain my bonus of £1,000, bringing a total of £5,000. Assuming no growth, if I choose to withdraw before I meet the 3 criteria I would lose £5,000 * 0.25 = £1250.

This means I get back £5,000 - £1250 = £3750. I've originally put in £4,000, and lost £250.

So should I get a LISA?

Yes, if you plan to:

  • buy your first home in the future
  • only withdraw once you are 60

You also need to be currently under 40 and over 18 years of age to open a LISA in the first place.

I highly recommend getting a LISA since it’s essentially free money, £1,000 every year. This is probably the best deal you can get here in the UK in terms of maximising your investments.

However, as the name suggests, it’s an ISA that is meant to be for a lifetime. If you are already saving for buying a house or retirement, the LISA is perfect for you since you can essentially save an extra £1,000 every year.

If you have any existing debts, it’s better to pay them off first and then only start investing

Okay I’m sold, so how do I open one?

There are 2 types of LISAs:

  • Cash LISA — A savings account with a fixed rate (e.g. 1.1% every year)
  • Stocks & Shares LISA — Investments in the stock market (can have better returns but the value might go down)

Essentially the Cash LISA is safer but with less risk. You can expect low interests rates (1.00% ~) but you can be sure the value won’t ever go down (except for inflation of course!)

The Stocks & Shares LISA invests your money into specific funds/portfolios for you, which means that your money is invested inside the stock market. This does mean that you can potentially lose money. Note that in the long run investing in an index fund (e.g. S&P 500 not a specific company!) has historically shown around a 10% return.

All index funds mean is that the risk is spread as you buy multiple stocks from many different companies, as opposed to just buying shares from a single company.

So which one to choose? It’s down to your risk appetite. For me, the interests rates of cash ISAs are way too low and don’t even cover inflation (which means you are losing money). For example in 2019 the UK inflation rate was 1.74%.

I highly recommend the stocks and shares version as I believe there’s a much better return on it, especially in the long run. What I usually recommend is that if you don’t need the money for 10+ years, invest it in the stock market to get a better return. In the next subsection, I will be going through and showcasing my own LISA.

I won’t go through every single option out there like Google and other resources can do the job. Here’s a link to some of the current best ones from moneysavingexpert.com

My own LISA — MoneyBox

Okay, this sounds great, but can I see a real-life example of how a real LISA would look like?

Yes! I joined Moneybox on January 17th 2020, right when I discovered the LISA. I’m currently using the Stocks & Shares LISA. Since then I’ve put in £7,600, which is

  • UK Tax Year 2019–20 £4,000
  • UK Tax Year 2020–2021 £3,600

Note that this is the tax year and not the usual year — e.g. UK tax year 2019–2020: 6 April 2019–5 April 2020

Complete breakdown

Weekly deposits

I do weekly deposits of £50 to make use of dollar-cost averaging which basically reduces the risk for me

Portfolio of shares

Currently, MoneyBox invests the majority into Fidelity Index World and a few property equities, and a small amount into bonds

Thanks for reading!

If you would like to get started with a LISA I highly recommend MoneyBox. They’ve had great returns for me overall

  • £1,850 in LISA bonus (close to 2 years worth of bonus)
  • £1,216.31 in investment gains
  • -£29.35 in fees

So from my initial £7,600, my LISA has now grown to £10,636.96 in under a year!

I’ve also had great experiences with MoneyBox and their app, and if you’re interested in trying them here’s a referral link to their signup

Here’s a link to the official GOV website for more info

Originally published at https://acheapguy.com/lisa