In Depth

Why you should be an Isa 'early-bird'

Research from Fidelity found investors would make £8,570 more over 10 years

The 2016/17 tax year is now over and if you didn’t use your £15,240 ISA allowance you have now lost it. But, the good news is you have a new £20,000 Isa allowance for the two-week old 2017/18 tax year.

The vast majority of people won’t get around to using their Isa allowance until March 2018, but invest now and you will make more money. That’s because your money will have a whole year longer to grow tax-free. This can add up to a lot of money if you invest your whole £20,000 allowance.

Research by Fidelity International has revealed that early birds who invested their full Isa allowance in the FTSE All Share at the start of the new tax year, and had done the same for the past 10 years, would now have £167,121. That’s £8,570 more than those people who wait until the end of the tax year to invest their money.

“We all have a propensity to procrastinate, especially when it comes to making an investment. It’s always easier to find some excuse to put things off, but as our analysis shows, it’s the early bird Isa investor who catches the best returns,” says Maike Currie, investment director for personal investing at Fidelity International.

Most of us don’t have £20,000 sitting around waiting to be put in an Isa, but you can still take advantage of the early bird benefits.

The study found even if you gradually invested your Isa allowance month by month – so this year that would be a monthly deposit of £1,666 – you would still be richer than someone who waited until the end of the tax year. If you had done that every year for the past decade, investing your whole Isa allowance in 12 monthly chunks, you would have be £6,065 better off than someone who waited until the last minute to invest their full Isa allowance.

So, if you are going to use your Isa allowance now, where should you put your money?

The best cash Isa available at present is Paragon Bank’s five year bond paying 1.75 per cent. It’s online only so if you want branch, phone or postal access you’ll need to opt for The Coventry’s five-year fixed account paying 1.7 per cent.

If you don’t want to lock your money away for that long then the Bank of Cyprus UK is offering 1.23 per cent on its two-year bond.

Or if you might need your money at any moment then The Coventry is paying 1.05 per cent on its instant access Isa.

If you want to invest your allowance in a stocks and share Isa then there are a couple of cashback deals on offer at the moment that are worth taking a look at.

Santander is offering 0.5 per cent cashback on deposits into its stocks and shares Isa up to a maximum cashback amount of £100. You just need to invest your money before 16 June.

If you are looking to consolidate your Isas then take a look at Fidelity International’s deal which could bag you £1,000 cashback. Transfer and/or deposit money into its investment Isa before 9 June and you can receive between £100 and £1,000 cashback depending on how much you pay in. The minimum deposit to get cashback though is £50,000, so this is one for the Isa rich.

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