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Savers to be warned about risks of Lifetime Isas Savers to be warned about risks of Lifetime Isas
(35 minutes later)
A UK financial regulator says the new Lifetime Individual Savings Accounts (Lisas) should carry risk warnings. A UK financial regulator says the new Lifetime Individual Savings Accounts (Lisas) should carry a series of warnings to consumers.
Lisas are due to launch in April 2017, with the promise of big bonuses for those who use the money to save for a home or retirement.Lisas are due to launch in April 2017, with the promise of big bonuses for those who use the money to save for a home or retirement.
But the Financial Conduct Authority (FCA) said people buying them should know that they are not risk-free. But the Financial Conduct Authority (FCA) said there is a danger that some people will not fully understand them.
The FCA said some consumers may not understand the difference between a Lisa saving and saving in a pension. Like other financial products, there can be risks to consumers, it said.
For example, it warned that some investors may not understand the difference between a Lisa saving and saving in a pension.
Others may not appreciate the impact of the early exit charges, it said.Others may not appreciate the impact of the early exit charges, it said.
The FCA also said that providers should offer cancellation rights for 30 days after selling a Lisa.The FCA also said that providers should offer cancellation rights for 30 days after selling a Lisa.
The Lifetime Isa: Free money, or just too complicated?The Lifetime Isa: Free money, or just too complicated?
How does a Help to Buy Isa work?How does a Help to Buy Isa work?
To open a Lisa, investors must be aged between 18 and 40. They can save up to £4,000 a year, and the government will add a 25% bonus.To open a Lisa, investors must be aged between 18 and 40. They can save up to £4,000 a year, and the government will add a 25% bonus.
Over a lifetime, savers have the potential to earn a bonus of up to £32,000, plus any investment return on top.Over a lifetime, savers have the potential to earn a bonus of up to £32,000, plus any investment return on top.
They can chose a cash Lisa, or a stocks and shares Lisa.They can chose a cash Lisa, or a stocks and shares Lisa.
However, savers earn the bonus only if they use the money to buy their first home, or are over the age of 60. If neither criteria is met, there is a heavy withdrawal charge. However, savers keep the bonus only if they use the money to buy their first home, or are over the age of 60. If neither criteria is met, there is a heavy withdrawal charge.
This amounts to the value of the bonus, plus an extra 5%.This amounts to the value of the bonus, plus an extra 5%.
WarningsWarnings
Specifically, the FCA has the following concerns:Specifically, the FCA has the following concerns:
Someone putting £4,000 into a Lisa in the first year, but withdrawing it in the second year, might end up losing £250, assuming there was no investment return, the FCA said.Someone putting £4,000 into a Lisa in the first year, but withdrawing it in the second year, might end up losing £250, assuming there was no investment return, the FCA said.
The FCA will now carry out a 10 week consultation into its suggestions, so that the new rules can be in place before April 2017.The FCA will now carry out a 10 week consultation into its suggestions, so that the new rules can be in place before April 2017.