Two months after they were formally introduced, savers can finally invest in a Lifetime Isa without having to put their money into stocks and shares.
But with Skipton Building Society's interest rate at just 0.5 per cent per year, they would be earning a paltry return relative both to standard instant access cash Isas and the Help to Buy Isas that the new product will eventually replace.
It all adds to the sense that the Lifetime Isa, a flagship announcement in George Osborne's last Budget as chancellor in March 2016, is struggling to gain traction in the low-interest rate environment.
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Skipton's rate compares to rates of more than one per cent on the best instant access cash Isas – and the best buy rate of 2.5 per cent from Barclays for the Help to Buy Isa.
Comparing just the Lifetime and Help to Buy accounts, the Daily Telegraph calculates that the Barclays Help to Buy Isa will earn £77.29 in interest on the maximum £3,400 deposits in the first year. When the 25 per cent government bonus is added, this would equate to £96.61.
The Skipton Lifetime Isa would earn just £17.04 interest, rising to £21.30 with the same 25 per cent bonus.
This is, of course, a little misleading. Both accounts only offer the government bonus when they are cashed in rather than on an annual basis – and they are subject to different bonus caps.
Help to Buy Isas must be used by a first-time buyer to purchase a qualifying first home and are subject to a £3,000 bonus cap on £12,000 of savings. With a maximum deposit of £200 a month, this would take a little more than four years to reach.
Lifetime Isas can either be used in the same way for a first home or to fund retirement, with a maximum annual deposit of £4,000 on which an annual bonus of £1,000 is available up to the age of 50.
For retirees the money is accessible from the age of 60.
This means that if someone opens a Lifetime Isa at the earliest age of 18, the maximum government bonus is £32,000. At Skipton's current rate of interest, by the time savers can access their funds they would each have a total pot of £219,358.
Simon French, chief economist at Panmure Gordon, told the BBC: "I would say it's a disappointing rate, but they know there's going to be a big inflow, because of the government top-up."
Critics have complained that the lack of alternatives on the market is to blame for the uncompetitive rate – and Skipton has effectively admitted its monopoly was a factor.
A spokesman for Skipton said: "Given that there is no other product in the market we have not got much to benchmark it against.
"We think it is a strong rate on the market – as it is the only offering".
