ISA Now? Or ISA Later?

Are you going to wait until early 2008 to invest your money in ISAs? If so, why?

It has always puzzled me that the period between January and March is known as the 'ISA Season' by the financial services industry. It is, apparently, the time when punters suddenly realise that if they want to legitimately 'hide' their money from Gordon Brown's magpie tax claws, then January-to-March is the time to do it. Before the tax year ends.

For example, when it comes to Cash ISAs, why do people leave it to the end of the tax year instead of putting their money in at the start? At the moment, you can save up to £3,000 a year in a tax-free Cash ISA. If you have that kind of money to hand, then you can invest it now and there is no tax to pay on any interest you earn. The fact is, if you wait until next March to open a Cash ISA you're going to lose 11 months of tax-free interest. It just doesn't make sense to wait.

Share ISAs aren't so easy. You can put up to £4,000 in a Share ISA if you have also put money in a Cash ISA, or up to £7,000 if you haven't invested any of your annual allowance into cash. Either way, if you were to put some or all of your ISA contribution allowance into shares, then you could lose out in a big way if you happened to put all your money in at the top of the market when shares might be more expensive.

So, if you have money you'd like to invest for the long term in shares, then I would suggest drip-feeding it into a Share ISA -- don't put it all in at once because the market may fall at just the wrong time when you put your money in. Drip-feeding is the best bet but the benefit of investing in a Share ISA is that any profits made from your stock market investments are free of Capital Gains Tax. Higher rate taxpayers also benefit from not having to pay extra tax on share dividends.

However, cash savings are what most of us understand - which is why Cash ISAs are so popular with the public. In view of the latest revelations about the current high rate of inflation, it is likely that the Bank of England will put the base rate up next time the Monetary Policy Committee meets in May. (The idea is that putting up interest rates stops people from spending so much, so prices and, therefore, inflation falls.)

Interest rates are, therefore, likely to be on the move -- upwards -- and if that's the case then Cash ISA savers may want to wait until the banks follow suit by also putting their rates up before investing their hard-earned money.

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