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Three reasons to start an ISA early

24 February 2022

3 minute read

We explore the benefits of using some or all of your ISA allowance early in the new tax year.

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek professional independent advice. Tax rules can change and their effects on you will depend on your individual circumstances.

Being an ISA early bird could help you maximise any returns you make.

With the £20,000 ISA allowance for the 2022/23 tax year being handed out to savers and investors on April 6, there’s the opportunity to use it straight away.

Many people put off making ISA contributions until the last minute, sometimes waiting until just before midnight at the end of the tax year on 5th April to maximise their full allowance for that year.

However, if you have the money available, and assuming you make a return on investment, you might consider investing as soon as you get your fresh tax-efficient allowance.

If you’re wondering whether being an early bird ISA investor is right for you, here are three reasons why it might be a good idea.

1. The importance of time in the market

Potential growth over the next 12 months could provide a valuable boost to your portfolio.

The critical benefit of investing early is not timing, it’s time. By this, we simply mean that you have your money in the market for longer.

The longer you’re prepared to stay invested, the greater the chance your investments will yield positive returns.

During any long-term investment period, it is vital not to be distracted by the daily performance of individual investments. Instead stay focused on the bigger picture.

2. Benefit from early compounding

The ISA allowance lasts all year, but the sooner you start investing, the sooner you can start to benefit from compounding, which is where your income can earn returns.

As long as you are patient and have plenty of time before you need to tap into your investments, you should benefit from the snowball effect of compound growth as the years roll by.

By compounding the returns over the longer term you can potentially help your money work harder without lifting a finger.

While most people don’t have £20,000 waiting in the wings to be invested in an ISA, the good news is that you can still benefit from compounding returns by investing amounts regularly as soon as the tax year starts.

3. The sky is the limit

While individuals have a tax-efficient allowance of £20,000, there’s no limit to how much the value of your investment ISA can grow. By taking full advantage of the allowance you could potentially grow a savings pot worth hundreds of thousands of pounds over time. In fact there are now 2,000 ISA millionaires in the UK according to new data1. The top 60 have pots averaging a whopping £6.2 million.

The investors in this sought-after club will have had a combination of maxing out their ISA allowance each year but also some very generous investment returns.

By saving and investing hard each year you can aim for the top.

Remember, if you don’t have a lump sum, you can still benefit by investing small amounts regularly from the beginning of the new tax year.

Ready to invest?

If you are looking to utilise your ISA allowance in the new tax year with at least £5,000, then you might want to consider our Digital Wealth Manager service, Plan & Invest.

With this type of account, our team of experts will make investment decisions on your behalf, which means that you don’t need to worry about spending time researching funds or shares.

For the time you might be procrastinating or simply delaying where to invest your money, you’re missing out on potential gains from the stock market.

Once we’ve checked you’re ready to invest and your application is accepted, our online Plan & Invest service maps out a Personalised Investment Plan tailored to your unique goals, circumstances and attitude towards risk.

There are over 10,000 different investment approaches which is why your plan will be truly personalised.

For existing customers, investing some or all of your fresh allowance is straightforward. Simply log into your account and follow the steps.

As a new or existing Plan & Invest customer you can sit back and let our experts select your investments and keep a close eye on them for you.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

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Choose your own investments with Smart Investor using our award-winning Investment ISA ('Best Stocks & Shares ISA Provider', Shares Awards 2021), or let us make the decisions for you with Plan & Invest. Either way, invest up to £20,000 per year and any returns you make are tax-free2.

Start investing to make the most of your money by making sure you've used your 2022-23 ISA allowance in an Investment ISA before you lose it. The sooner you begin, the sooner you could grow your money, tax efficiently.

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