Seven deadly ISA sins to avoid
How many of these savings sins are you guilty of?
The new tax year is looming and there's not much time to make the most of your ISA allowance before 6th April.
But before you go rushing off to open a new ISA, make sure you read these seven deadly ISA sins, identified by provider Nutmeg.
You have it but you don’t invest it
The current ISA allowance is £15,000. If you have that much set aside, then you really should be putting it in an ISA rather than anywhere else. And it should be invested as early as possible to make the most of your returns.
Nutmeg research found that UK investors who use their ISA allowance fully and invest in this tax year and the beginning of each future tax year can accumulate a tax-free nest egg of a quarter of a million pounds in ten years, half a million pounds in 17 years and a million pounds in 25 years.
Thinking that ISAs are only for people with lots of money
Some companies will ask for a minimum investment in return for a higher interest rate. But most ISAs don’t have a minimum requirement. Every penny counts, so if you can only afford to save a few pounds, that's still better than nothing.
Not knowing your fees
The Stocks & Shares ISA market is pretty intimidating, but don’t let that scare you into going for the first one you see.
When you’re doing your research, keep a close eye on charges. You should be particularly diligent when it comes to investment management fees and any other charges associated with your Stocks & Shares ISA as these can vary wildly. Some of them aren’t immediately apparent such as set-up fees, trading charges, administration and exit penalties. These can really add up and damage your potential returns.
Not keeping an eye on your ISAs
If you’ve got a collection of ISAs, I can bet that some of them are just gathering dust. Research from Nutmeg found that 22% of ISA holders have no idea how their previous ISAs are performing. To top things off, 40% can’t be bothered to review their ISA performance because they think it’s too time consuming.
To make things easier, it might be a better idea to transfer all of your old ISAs into one place. It'll help you better understand the full value of your wealth and how it’s doing all in one pot.
Believing Stocks & Shares ISAs are only for seasoned investors
With a Stocks & Shares ISA, you can stick your money into a fund that tracks a stock market or group of companies. You don't need to be keeping tabs on the financial markets if you don't want to. These ISAs really are for everyone, not just those who read the Financial Times.
Assuming ISAs are complicated
The old Personal Equity Plans (PEPs) and Tax Exempt Special Savings Accounts (TESSAs) were rather complicated, but thankfully ISAs are much simpler.
For a comprehensive guide to how they work, read our Beginner's guide to Stocks & Shares ISAs.
Not thinking about the long term
If you don’t have a lump sum ready to go straight away, it’s a better idea to put smaller amounts into an investment ISA each month. You’ll see the effects of compound returns more quickly - an amount invested on the first day of the tax year has 11 months more of compounding than capital invested right at the end of the year.
With ISAs, it's best to approach them with a long-term plan.
If you fancy giving ISAs a go, head over to lovemoney.com’s ISA comparison centre
More on ISAs:
Peer-to-peer ISAs: What happens next?
Child Trust Funds: the Junior ISAs to move your money to
Comments
Be the first to comment
Do you want to comment on this article? You need to be signed in for this feature