THE RUSH to meet the 2017/18 ISA deadline is over, and a new ISA season has begun. But while many savers may feel that they have done their duty for another 12 months, it is never too early to start thinking about your ISA investments. In fact, the earlier you can invest, the better.
According to newly-released data from Fidelity, ISA investors could be more than £10,000 better off by investing in their stocks and shares ISA at the start of the tax year, rather than leaving it to the last minute. And for investors who are targeting the higher returns offered by the Innovative Finance ISA (IFISA), the rewards could be even greater.
Fidelity calculated that investors who placed their full ISA allowance into the FTSE All Share on 6 April each year for the past 10 years would have seen their capital investment of £123,560 grow to £180,298. By contrast, those who wait until the end of the tax year would have seen their £123,560 capital rise to just £170,128 over the same time period – a difference of £10,170 in total.
Read more: Five things you need to know about IFISAs
“When it comes to your savings and investments, it’s easy to find an excuse to put it off but as our analysis shows, it’s the early bird ISA investor who catches the best returns,” said Ed Monk, associate director for personal investing at Fidelity International. “Indeed, you could be better off by the tune of £10,000 by investing early and not leaving it to the last minute.”
For IFISA investors, there is even more reason to allocate your money early. While any stocks and shares investment is subject to market volatility and variable returns, most IFISAs offer fixed rates of up to 16 per cent, depending on how much risk the investor is willing to take on. Any deviation in these returns comes from defaults or late payments, and not market movements.
Furthermore, many IFISAs allow investors to receive monthly or quarterly dividends, which can be automatically reinvested into their ISA portfolio tax free. This allows early IFISA investors to benefit from the effects of compound interest – effectively earning interest on their interest. Over 12 months, even small dividends can add up to boost your ISA earnings.
Finally, there is the issue of financial stress. There is nothing more stressful than leaving your ISA allocations to the last minute. Fidelity has revealed that its last ISA deposit was made at 11.52pm on Thursday 5 April – beating the deadline by just eight minutes! By addressing your ISA allocations at the start of the tax year, you can organise your finances and reduce financial stress. For instance, many savers and investors choose to set up a monthly direct debit up to the value of £1,666, which will allow them to take full advantage of the current tax year’s £20,000 ISA allowance.
Increased returns, compound interest, and minimal financial stress – the advantages of early ISA investing are clear. So what are you waiting for?