It becomes just the fourth provider to offer a cash version of the government-backed home and pension saving scheme.

The new deal beats the current top rate of 1.10 per cent from Newcastle Building Society and the 1 per cent offered by Skipton Building Society and Nottingham Building Society.

The Moneybox Cash Lifetime ISA will be powered by OakNorth Bank and can be opened via the Moneybox app with a minimum deposit of £1. Transfers from any existing ISAs are accepted.

Ben Stanway, co-founder of Moneybox, said: “The Lifetime ISA provides a much-needed helping hand to young people who are trying to get on the property ladder and we’ve been very surprised to see so few banks make it available to their customers.”

What is a Lifetime ISA?

The Lifetime ISA was launched in April 2017 to help people aged 18-39 save for their first home or retirement. They can put away up to £4,000 each tax year towards a property or pension and receive a government bonus of 25 per cent (up to £1,000 a year).

Despite a lack of providers in the market, around 286,000 Lifetime ISA accounts have been opened since the product launched, according to a recent Freedom of Information request by investment firm AJ Bell.

Laura Suter, AJ Bell’s personal finance analyst, said: “Finally we are starting to see something that looks like competition in the cash Lifetime ISA market, which has been sluggish since launch. There has been a dearth of providers in the market, meaning those that entered the space didn’t have to compete much on rates to draw in new savers.”

The new Moneybox deal means someone saving the full £4,000 annual allowance would earn £14 more interest a year, after the 25 per cent government bonus has been added, than they would from the current best buy from Newcastle Building Society.

Help to Buy rates still higher

Lifetime ISAs are similar to Help to Buy ISAs in that both products aim to help first-time buyers onto the property ladder with a 25 per cent government bonus.

However, Help to Buy ISA rates are far more competitive.

The highest interest Help to Buy ISA cash rate is 3 per cent from Penrith Building Society, although it’s only available to residents of Cumbria.

The highest widely available rate is 2.58 per cent from Barclays.

However, Help to Buy ISAs are closing to new savers from 30 November 2019.  After that date, people with accounts can keep making contributions until 30 November 2029.

“The [Moneybox] launch takes the number of cash Lifetime ISA providers up to four, compared to 27 Help to Buy ISA providers, showing the effect that more providers in the market could have on rates,” said Suter.