Recently, a client asked me a great question:
“My daughter’s 22. Should she open a Cash ISA or a Lifetime ISA?”
It’s a brilliant question — and one I hear often. With so many savings products out there, it’s completely normal to feel unsure about the best place for a young adult to put their money.
So let’s break it down clearly and explain the difference between a Cash ISA and a Lifetime ISA (LISA)… and why, for many young adults, the Lifetime ISA can be an incredibly powerful head start.
What Is a Cash ISA?
A Cash ISA is a savings account where the interest you earn is completely tax-free.
It’s flexible — you can put money in, take money out, and save up to £20,000 per tax year across all your ISAs.
Cash ISAs work well for:
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Building general savings
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Emergency funds
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Short-term goals
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Earning interest without worrying about tax
They’re simple and accessible. But they don’t offer the bonus that a Lifetime ISA does.
A 25% bonus from the Government.
Put in £4,000 a year… you get £1,000 added on top. Free
What Is a Lifetime ISA (LISA)?
A Lifetime ISA was designed to help people:
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Buy their first home, or
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Save for retirement (from age 60)
Key features:
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Open between ages 18 and 39
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Save up to £4,000 per year
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Receive a 25% government bonus
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That’s up to £1,000 per year, added automatically
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Must be open for 12 months before it can be used for a home purchase
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Home must cost up to £450,000
If you withdraw for anything other than your first home or after age 60, there’s a 25% government penalty, meaning you could get back less than you paid in.
Cash ISA vs Lifetime ISA — The Key Differences
Here’s the simple version I shared with my client:
A Cash ISA is flexible and tax-free.
A Lifetime ISA gives you an immediate 25% uplift on your savings — but it’s only suitable if you’re confident the money will be used for your first home or for retirement.
For many young adults saving toward their first property, that bonus can make a meaningful difference.
A Practical Strategy for Someone in Their Twenties
If a 20-something is thinking about buying a home in the future, the approach below often works well:
1️⃣ Open a Lifetime ISA as early as possible
Even if they put in £1 — it starts the 12-month clock.
2️⃣ Save into the LISA up to the £4,000 limit
That unlocks the full £1,000 bonus for the year.
3️⃣ Use a Cash ISA for additional savings
This uses the rest of their £20,000 ISA allowance tax-free.
This combination provides the best of both worlds:
the government bonus, tax-free growth, and flexible savings alongside it.
The Bottom Line
For many young adults saving for a first home, the Lifetime ISA can offer a significant head start thanks to the government bonus. But the right choice always depends on personal circumstances and whether they can commit the money for an eligible purpose.
If you’d like help choosing the right approach for your family or want to build a clear savings plan for your children, I’m always here to help.
This article is for general information only and should not be taken as personal financial advice. Please speak with a financial adviser or consider your own circumstances before making financial decisions.