Five reasons to invest your ISA allowance at the start of the financial year
Having closed off last year’s ISA investment window, investors now have another opportunity to squirrel away £20,000 tax free during the 2023/24 tax year.
While there is a whole year stretching out ahead of you to meet the government’s limit for ISA investment, there are several reasons why doing so early could be beneficial.
An ISA, or Individual Savings Account, enables people to invest their money and earn capital gains without paying taxes.
There are several types, including cash ISAs, stocks and shares ISAs, lifetime ISAs and peer-to-peer backed innovative finance ISAs.
Read more: IFISA Guide
So, why invest the full ISA allowance up front? Here are five reasons:
Maximise returns
The sooner you put your money into an ISA, the longer it has to accrue returns, as opposed to if you invested at the end of the year. An IFISA is likely to have a higher return than alternatives offered by traditional financial institutions, investing the full year’s allowance early is a great option of you have the money available.
Test the market
Investing in an ISA early in the tax year enables you to monitor the return and shop around if you don’t feel your first choice is performing as well as others in the market. While not all ISAs make withdrawing easy, it is usually possible to transfer your investment under certain conditions.
High rates
Many ISA providers offer higher rates to attract investors at the start of the tax year, and at the moment interest rates remain relatively high in general. Investing at the start of the financial year is likely to pay off, while we are still in this high interest rate environment. It is predicted that interest rates across the board will begin to fall in the latter half of this year, and while your rate may not be locked in if you invest early, you will be making the most of the higher rates while you can.
Compound interest
Compound interest is the addition of interest to the principal sum of a loan or deposit, so it’s the interest you earn on the initial deposit, plus interest. The longer you hold an investment, the greater the compound interest will be, so why wait until the end of the tax year?
Beat the rush
Finally, setting up and depositing large sums into an ISA can take a little time. Most ISA providers make the process as painless as possible but once you take into account the time spent researching the best ISA, setting up the account and transferring the money, it can take a little time. This process can get more congested at the end of the tax year when everyone is rushing to secure their annual allowance before the tax year ends on 5 April.
Read more: Exclusive: Largest IFISA providers revealed