The specialist bank has launched the cash version of the government-backed home and pension saving scheme, offering a variable rate of 1.15 per cent gross/AER.

Paragon Bank, which won Best Online Cash ISA Provider at this year’s YourMoney.com Awards, allows transfers of existing Lifetime ISAs. The account can only be opened online, but it can be managed online, by phone or by post.

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. Up to £4,000 each tax year can be put away towards a property or pension and the amount receives a government bonus of 25 per cent (up to £1,000 a year).

The funds can be withdrawn free of charge once the account holder buys their first home or reaches the age of 60. Any other withdrawals will be subject to a 25% penalty charge on the whole amount.

How does Paragon’s deal compare?

Given just a handful of providers offer the cash Lifetime ISA, Paragon’s deal pips the 1.10 per cent from Newcastle Building Society and the 1 per cent from Skipton Building Society. However, it lags the 1.5 per cent offered by financial app Moneybox and the 1.25 per cent from the Nottingham Building Society.

Anna Bowes, co-founder of advice site Savings Champion, said:  “With the Help to Buy (H2B) ISA being withdrawn from sale at the end of the month, hopefully this new account from Paragon will be the first of many new cash Lifetime ISAs (LISAs) to the market. I would especially expect to see LISAs launched by some of the high street providers, such as Barclays, Nationwide and NatWest, which currently offer some of the best H2B ISAs on the market.

“With just five cash LISAs to choose from, the Paragon account sits in the middle of the ranking, offering neither the best nor the worst rate. Hopefully more competition in this market will see rates pushed up, although as more can be deposited each year into the LISA compared to the H2B ISA, we may not see rates as high as the latter which are paying up to 2.55% AER.”

Help to Buy ISA closing this week

The Help to Buy ISA, another government savings account targeting first-time buyers, closes to new savers on 30 November. If you open one before then, you’ll be able to continue contributing into it until 30 November 2029, and you’ll be eligible for the government bonus as long as you buy a property before December 2030.

With a Help to Buy ISA, you can save up to £1,200 in the first month and then up to £200 a month after that. The state will then add a 25 per cent bonus on top of what you save. So, for every £200 you save, the government will contribute £50.

Click here for the best Help to Buy ISA rates.