Six tips to give your Isa a last-minute savings boost
As the tax deadline creeps closer, by now you’re probably tired of the constant reminders to use or lose your annual £20,000 tax-free Isa limit.
Perhaps you’ve been ignoring the prompts, putting everything off until now.
You certainly wouldn’t be alone in doing so. In fact, looking at the past three tax years, wealth management giant Hargreaves Lansdown told CityAM that one in eight of all their lump sum Isa subscriptions are made in the last two weeks of the financial year.
With little over a fortnight to go until the end of the tax year on 5 April, is there anything you can do now to get your savings in order?
Here are some tips to give your savings a last-minute boost.
1. Just move it
First, if you’re not sure whether you want to invest, transfer some cash into an Isa in order to make the most of your allowance.
It doesn’t have to be a Cash Isa either – you can use the cash facility through a Stocks and Shares Isa while you figure out whether you want to invest.
“You don’t actually need to invest to secure your Isa allowance for this tax year,” says Adrian Lowcock, head of personal investing at Willis Owen. He points out that you can place your money in cash and then come back at your convenience once you’ve decided where you would like to invest it.
Though this comes with a caveat: the investment expert warns that if you do this, don’t just leave your money sitting in cash for months, because the interest rate after charges is often minimal.
2. Carefully consider your risk level
If you’re sure you want to invest your money, make sure that you are comfortable with the level of risk you’re taking.
Before you rush into any decisions, Moira O’Neill, head of personal finance for Interactive Investor, says that you should understand your risk profile. “You may enjoy the good times, but can you cope with the potentially stomach churning falls if you opt for a high risk option? And bear in mind that too little risk can also be painful.
“If you plan to invest for a decade or more, consider taking on a bit more risk, as you’ll have time to weather any stock market storms.”
O’Neill says a globally diversified fund is a good solution for most investors, because it will spread your risk between hundreds of investments, even if you’re only investing a small amount.
3. Compare and control charges
If you’re deciding what fund or investment platform to invest in, pay close attention to management and admin costs. “In uncertain times, controlling costs can be comforting,” says O’Neill. “Costs are really the only thing that investors have completely within their control.”
While some fees might seem small on the face of it, costs can erode tens of thousands of pounds off your investment in the long run. So weigh up the different options, and try to estimate the long-term impact of charges, avoiding any providers that don’t make their fees easy to understand.
4. It might be time to top up
Just because the tax deadline is fast approaching doesn’t mean you have to add new funds or shares to your portfolio.
Instead, it might be worth reviewing your investments. Lowcock suggests that you could consider topping up existing holdings. “It is worth revisiting existing funds and deciding whether to add to those, just make sure you don’t have all your eggs in one basket and that you are diversified.”
5. Opt for secured assets
If you’re struggling to decide where to allocate your Isa money, hone your options down to asset-backed investments. For example, some Innovative Finance Isa (IFISA) providers let you invest in property, which means your money is secured against a physical asset.
“Lending money can be much safer when the borrower puts up collateral,” explains Tom Buttress, co-founder of Propio. “If you’re looking to amplify your returns with an IFISA, think about choosing one which lends money against an asset, rather than unsecured personal or consumer loans.”
6. Don’t feel pressured into making decisions
Panic is an investor’s worst enemy, and could lead to you making some rash decisions that you might later regret, such as buying into a popular company when the share price is too high.
“Don’t feel pressured to make any investment decisions,” warns Lowcock, pointing out that decisions should be done with the full information and facts available. “It is your hard-earned money, so take your time.”
It is also important to remember that a new annual allowance comes into force on 6 April, and for the majority of people, £20,000 a year is plenty.
Finally, be aware that for some providers, the deadline to transfer shares to an Isa might be a few days earlier than 5 April, so check beforehand, and try not to cut it too fine by moving everything in the last week.
As Lowcock points out: “Don’t leave it too late, because something could happen – you could have a power cut or the website could crash – which means that you risk missing out.”
So get started as soon as your can to save yourself from disappointment.