ISA - withdrawing for house? Help please!

[snowwhat]

I've been saving for a while and am hoping to buy sometime within the next 6 months to a year, but it's all up in the year. I've been saving into a high-paying fixed-term cash isa that's coming to an end shortly and I need to decide what's best to do.

The highest rates for ISAs atm that I've seen are fixed for a year at around 4.2/4.3% (allowing for 3 withdrawals of 10% each time and a penalty of 90 days interest for closure).

I don't want to pay a penalty if I end up needing to withdraw the money to buy a house sometime over the next 12 months. But equally if that doesn't happen, I don't want to have left that money in an easy access ISA at 1.1% without building up any interest iyswim.

Has anyone been in this situation before? What did you decide to do?

Trading 212 currently has an easy access ISA that pays 5.1%

Is it not worth getting a Lifetime ISA? You get 25% bonus from government and you can withdraw anytime. Otherwise look for an ISA that allows a few withdrawals a year?

I was put off the Lifetime ISA because I've read there is a lot of faff around withdrawing the money when you need it for a house?

@Bbqnights we opened that one the other day, very easy.

It is too late to open a LISA if you expect to buy within 12 months, a LISA needs to be open a year before you can withdraw without a penalty for purchasing.
Ulster Bank have a savings account 5.2%, shortly dropping to 4.75% I think, must have £5000+ in but can withdraw money any time without penalty.

@speak2me - exactly, that's why I haven't considered the LISA, but will look into opening one for a pension soon...

I hope this makes sense but I'm trying to get my head around the logistics of it all. So if I open an ISA now and say it's open for 6 months but then I have to close it, I'll have to pay the penalty of 3 months' worth of interest. Does that mean that I'll still have basically 3 months' worth of interest I've collected so I won't have less than what I put it into the ISA initially? Unless I've misunderstood it?

Yep, this is what I have.

OP, go have a read on MoneySavingExpert and look at the tables for ISAs etc. You can get 5% in an easy access ISA that you can withdraw from any time.

I used a LISA and had absolutely no problems withdrawing and getting the bonus. The mortgage people just send something to the bank. It was super easy. But if you're going buy in less than a year, there's no point.

I've had a look at Trading 212 but the rate is variable so I'm not sure it's right for me. I know it's old-fashioned, but I just feel more comfortable sticking with the larger, well-known banks - I know I'm missing out on loads of good deals but would rather have peace of mind, I think!

Most of the easy access ISAs are variable rate, that's why the rates are better than fixed because they can go down as well as up. But there's no need for you to have anything at 1.1%. While you're deciding, put it into any of the easy access ISAs or you're just losing out on money every day. You can transfer ISAs to new deals and providers easily. If you want a high street name, Leeds BS are offering 4.6% with unlimited withdrawals.

Put it in an instant access ISA, the rate will be lower but you can get the money any time. Or one of the limited number of withdrawals type and make sure you take out what you need in less goes than you are allowed. Or if you are sure you will be taking it out, take it out and put it in an instant access standard account at the highest rate.

If the penalty for withdrawal is three months loss of interest and you haven't yet earned three months worth of interest you will lose some capital to cover it.

Thanks everyone for the suggestions - another silly question, but does it make a difference if the interest is paid annually vs. monthly and you close it earlier? I'm seeing a lot of the deals mentioned above only pay out on the interest annually. Just curious if there are any benefits to leaving it for a year or getting it monthly as I've been taking the interest I make on my current ISA each month and reinvesting it elsewhere

Not what you asked but... you should open a LISA right away and put £1 in it. Here's Martin Lewis explaining why. Basically, when you're about to buy a property, you'll be able to use a clever trick to immediately receive £1000. But it only works if the LISA has been open for a year, so open one now and start the clock ticking. 19 Sept episode: https://podcasts.apple.com/gb/podcast/the-martin-lewis-podcast/id520802069

Someone else on this thread mentioned that there's no point opening a LISA now and piling cash into it, in case you buy a house in less than a year's time: unless you paid a big penalty to take your money out, it would then be stuck in the LISA until you're 60. This is true. So you shouldn't put much into it. But if you simply open it with £1 and wait a year to buy the house, you'll then be able to sling money in (max £4k) and take that money straight back out again for the house, with an extra 25% of free cash from the government. What if you buy your house in less than a year? Then you'll only have tied up £1, which is hardly a big risk.