Individual Savings Accounts (ISAs) are a fundamental tool for tax-efficient saving and investing in the UK. However, navigating the world of ISAs can be tricky, and even seasoned savers and investors can make common mistakes at times. As the 2024/2025 ISA deadline looms, it’s crucial to ensure that you’re making the most of your allowances and avoiding costly errors that could impact your financial future. With that in mind, here are five mistakes to avoid as we approach the deadline.
1) Missing the ISA deadline
The ISA deadline is midnight on 5 April. But you shouldnβt wait until the last minute to open or contribute to an ISA account.
Savings and investment platforms can see a flood of website traffic in the hours before the deadline, meaning that website and app functionality can become unreliable and processing times can be delayed. You can also run into issues you hadnβt foreseen, like not being able to transfer money from one account to another before the deadline.
To avoid missing the ISA deadline, itβs smart to make your moves well before 5 April. This will ensure that your transactions are processed smoothly and that you maximise your tax-free allowance.
It happens more often than you think, with Sarah Coles, head of personal finance at Hargreaves Lansdown (who have 1.3 million active ISA accounts), telling us that βSavers and investors are limbering up for the annual ISA dash. Somehow, despite more than 200 years of the tax year ending on 5 April, it sneaks up on people every year, and an awful lot of people end up racing to sort their finances before the deadline.”
2) Choosing the wrong type of ISA
There are several different types of ISAs available today including Cash ISAs, Stocks and Shares ISAs, and Lifetime ISAs. And itβs important to pick the right type for your goals.
If you are saving for retirement and have a multi-decade investment horizon, a Stocks and Shares ISA (or Lifetime ISA) is likely to be more appropriate than a Cash ISA. On the other hand, if you are saving for a short-term goal, or need an account for an emergency fund, a Cash ISA may be more appropriate.
So, give some thought to your goals and risk tolerance before opening an ISA. This will ensure that your ISA aligns with your personal financial strategy.
3) Going with the wrong provider
Not all ISA providers are created equal. This is particularly true when it comes to investment ISAs.
Here, some providers offer far more investment options than others. Meanwhile, some offer far lower fees than others. Before you open or contribute to an ISA, itβs worth thinking about the best provider for your needs.
If youβre looking to compare ISA providers, you can find plenty of information right here at Good Money Guide.
4) Not giving thought to your investment strategy
Before you invest any money within your ISA, itβs a good idea to think about your investment strategy.
Is it still suitable for your goals and risk tolerance? Since you last contributed to an ISA or put some money away for the future, your financial circumstances may have changed.
Before investing, itβs also a good idea to think about diversification and make sure that youβre not overly exposed to one particular area of the market. This year has illustrated the importance of portfolio diversification. While US stocks have been weak, other areas of the market such as UK stocks, European stocks, healthcare stocks, and defence stocks have produced gains.
5) Investing a lump sum at the wrong moment
When you contribute to an investment ISA, it can be tempting to invest the money immediately. However, this is not always the best idea. If the market has had a strong run, or showing signs of volatility ahead, it can pay to gradually drip-feed the money into your investments over time.
This will help you avoid investing a lot of money at the top of the market or investing just before a pullback. This strategy is called pound-cost averaging (or dollar-cost averaging). And it is a proven method to reduce the risks associated with market timing.
- What next? See the best ISA deals and offers this year and make more of your money.
Based in London, Edward is a distinguished investment writer with an extensive client portfolio comprising a diverse array of prominent financial services firms across the globe. With over 15 years of hands-on experience in private wealth management and institutional asset management, both in the UK and Australia, he possesses a profound understanding of the finance industry.
Before establishing himself as a writer, Edward earned a Commerce degree from the prestigious University of Melbourne. Complementing his academic background, he holds the esteemed Investment Management Certificate (IMC) and is a proud holder of the Chartered Financial Analyst (CFA) qualification.
Widely recognized as a sought-after investment expert, Edward’s insightful perspectives and analyses have been featured on sites such as BlackRock, Credit Suisse, WisdomTree, Motley Fool, eToro, and CMC Markets, among others.
You can contact Ed at edward@goodmoneyguide.com
