Act now or lose £714 of tax-free cash!

Find out why it's a mistake to buy your ISA just in time for the end of tax year deadline

The last minute mad rush to get ISA applications in before the end of tax year deadline has become a real tradition. This is because any ISA allowance you don’t use up by the April 5th each year will be lost forever.

Why is it a mistake to wait until 5th April?

But I think it’s a mistake to wait until the end of the ISA season dash. What savers should be doing is finding a home for their ISA cash at the beginning of a new tax year instead. By doing this you can start earning tax-free growth a whole year earlier.

How much could I lose?

Let’s take a look at the difference in returns if you invested the full ISA allowance in a stocks and shares ISA on the April 6th - which is the very first day of the tax year, compared with the same investment made on the April 5th - which is the very last day of the tax year.

Remember, in the 2010/2011 tax year, we all benefit from a more generous ISA allowance of £10,200. So, an investment of this amount made back on April 6th could be worth £10,914 if it grew at a rate of 7% over a year.

That means savers who hold back their investment until April 5th next year would lose £714! Now where’s the sense in that?

Why pay tax?

If you keep this money is in an ordinary savings account for the year instead of an ISA, you might make up some of your losses by earning interest on your cash. But you’ll have to pay tax on your return, which of course you could avoid by using an ISA.

So my advice is simple: Don’t wait till next April. Start your ISA today. After all, the early bird catches the worm.