The benefits of early ISA investment
– Rachel Mason is public relations manager at independent financial service providers Fair Investment Company. The opinions expressed are her own. –
The financial media has been packed full of ISA news over the past few months. Most of the advice has been ‘invest in your ISA before it’s too late’. And now it is too late. The media has found something else to write about because the tax year is over, and if you missed it, tough luck.
But actually, you’re just in time for this year, because if you get in early you won’t be caught up in the mad panic next April. A recent survey of Fair Investment Company investors revealed that actually, more than a third make their ISA investment at the start of the season, and this is the most tax efficient way of making an ISA investment.
Although the full allowance is 10,200 pounds, only half of this can be put into a cash ISA – the most popular type of ISA (of the 14.2million ISAs subscribed to in the 2008/09 tax year, 11.2million were cash ISAs).
And according to Moneyfacts, the average cash ISA is currently paying 2.17 percent while the average fixed rate savings account is paying 3.17 percent, so if you are only looking for a relatively safe investment, why go for an ISA when you can get higher rates on a savings account?
Well, the best buy cash ISA will almost always beat the best buy savings account because interest earned from a standard savings account is immediately subject to tax (20 percent if you are a basic rate tax payer or 40 percent if you are a higher rate tax payer) whereas all interest from an ISA comes directly to you completely tax-free.
And for those who are willing to take a bit more risk with their cash, the average ISA funds yield is currently around 7 percent.
It is clear that ISA investment is definitely worth considering, and it is worth considering now. Because not only can it be stressful trying to open a new account when you are up against, but think of the months and months of tax free interest you will miss out on by waiting until the last minute.
Quite simply, the sooner you do it, the better off you’ll be.