The early bird ISA investor may catch the best ROI
Let us figure out what an ISA is and why it cold be profitable for you
Before we start discussing the pros of investing in an ISA early, let us remind you what an ISA is.
An individual savings account or simply ISA is a special type of account that gives the investor certain tax benefits. The account is opened and maintained by a broker on the basis of a brokerage service agreement (or a securities trust management agreement). You can open only one account, and the minimum period for investing in an ISA so as to receive an investment tax deduction is 3 years.
The first individual savings account appeared in April 1999, and since then the annual ISA contribution has steadily increased from £7,000 to £20,000.
Now there are four types of individual savings accounts:
- Cash ISAs
- Investment ISAs/Stock and Shares ISAs
- Lifetime ISAs
- Innovative Finance ISAs
Paying into a Cash ISA is like putting your money in the piggy bank in case of any unexpected expenses. Investment ISAs are for long-term investments. An innovative finance ISA lets you use your tax-free ISA allowance, but in this case you directly lend money to businesses. To those aged 18-39, a lifetime ISA lets you save up to £4,000 every tax year towards a first home or your retirement.
And now the most interesting: why investing early in your ISA will help you reap rewards
You can invest in an ISA differently:
- on the first day of each tax year
- every month
- on the last day of the tax year
If you don’t have the full amount of money in the beginning of the tax year, then investing monthly could be a wonderful option. But if you decide to invest on the last day, the returns will be lower as the tax free growth throughout the year makes a significant difference to the returns. As interest rates continue to be low, if you want to make the most of your ISA, invest in the beginning of the tax year.
But as early bird investors have more time, they are safe from unwise last-minute investments. It was calculated that if someone had annually invested £6,000 since 1999, they would have accrued £6,969 more, than if they had waited till the end of the tax year. According to the same calculations, if someone had invested £500 every month since 1999, they could have accrued £4,694 in additional returns compared to investing at the end of the tax year. So, if you can’t afford investing a big amount of money all at once, statistics are also on your side.
So where does that leave us?
Orca does not provide investment advice. If a customer has any doubts, they need to contact an investment adviser. Terms and conditions apply. Your Capital is at Risk.
Orca is an appointed representative of RiskSave Technologies Ltd, which is authorised and regulated by the Financial Conduct Authority (FRN 775330).