With last-minute alternations underway, Britons are warned of “last minute” ISA pitfalls that people make in the run-up to April 5. At a time of high inflation and low-interest rates, many people will be looking at ISAs to make the most out of their money.
By taking action now, rather than leaving it to the last day – or the final hour – people can avoid potential last-minute slip-ups that could stop them from taking advantage of their ISA allowance this year.
Sarah Coles, head of personal finance at Hargreaves Lansdown, explained last-minute ISA pitfalls, and how people can avoid them.
She explained that people should not wait for the market to settle down as “plain sailing” cannot be expected in the immediate future.
Last-minute ISA mistakes:
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Investing a lump sum at the wrong moment
Trying to time the market is notoriously difficult, even for professional investors, but even when people are not trying to do anything particularly clever in terms of timing, they may want to avoid the risk of investing their annual allowance at a bad time.
Ms Coles said: “One useful option is to put money into cash within a stocks and shares ISA before the deadline, to protect your allowance, and then gradually drip-feed the money into investments.”
Panicking, and picking an investment in a hurry
If someone is opening an ISA at five minutes to midnight, it’s not necessarily the ideal time to be thinking clearly about their investment strategy.
She explained it can be really helpful for Britons to split the decision to open an ISA to protect their allowance, and the choice of where to invest.
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Before the deadline expires, people can put money into a stocks and shares ISA as cash, and move into their chosen investments when they’re ready.
Opting for stocks and shares if people don’t plan to invest this year
Securing the ISA allowance is a very sensible idea, but if someone plans to leave it all in cash for a considerable period, it makes sense to consider a cash ISA.
She stated it has been a much more competitive ISA season than investors had for some time, so people can secure a better return on their cash, and then transfer into a stocks and shares ISA when the time is right.
Opening an ISA, forgetting that they already have one
In each year people are allowed one cash ISA and one stocks and shares ISA.
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So if, for example, they pay into a stocks and shares ISA at the start of the tax year, they can’t take out another one with a second provider later in the tax year – unless they’ve arranged a transfer.
This is easier to fall foul of than it first seems, especially if people had regular payments set up into an ISA last year and they forgot to cancel before a payment went out in the current tax year.
People can check their bank statements to make sure they haven’t already paid into a specific kind of ISA before they get started.
Leaving it too late
Most people open their ISA or top up online, because they can do it at any time of the day or night, without having to speak to anyone.
Ms Coles said: “The process is straightforward, and all you need is a debit card and your National Insurance number to complete it.
“However, give yourself time before the deadline, so you’re not needlessly rushing at the 11th hour.
“If you can’t open your account online, you can do it by phone, but make sure you know the opening times of your chosen provider before you start.”
Britons are warned with investment capital is at risk, and people could get back less than they originally put in. For this reason, the option is not suitable for everyone.
People can seek help from an independent financial advisor if they are not sure what they can do with their money.
