5 Reasons You Should Invest In An ISA At The Beginning Of The Tax Year
Now we’re in the 2022/23 tax season, we look into 5 reasons you should invest in an ISA at the beginning rather than the middle to the end of the tax year.
Why should you invest early?
There is no wrong answer as to why you cannot invest late into a tax year. In fact, it’s recommended as you’ll save up more to invest, making you more money in the long run. But there is a reason why you may want to invest sooner rather than later – the eye-catching tax-free returns.
With an early investment, your money can maximise its potential returns in the current tax year as opposed to waiting until the end of the following tax year if you invested late. This means your early investment returns could double in the two tax-year brackets as opposed to just one single return by investing late. In addition, by investing early, you can see how well the ISA is operating, giving you a clear picture of whether or not you want to keep investing in your chosen provider for the following year.
To some, the ISA season is not what it once was. This could partially be thanks to the dreadfully low-interest rates on offer. However, there are always investment ISAs to consider, especially IFISAs where you’re likely to get a higher return. If you’ve used up your personal savings allowance, ISAs still offer valuable tax benefits too.
You’ll have longer for your investments to grow
As soon as you place your investments into an ISA (except for the Lifetime ISA), you’ll start to earn interest – do note that stocks and shares ISA can start with a loss. This is a good way to maximise the potential returns. With an early investment, your money can start growing from day 1 rather than day 300, working your returns from the very beginning. The ISA allowance remains at £20,000 for the 5th year in a row.
For those who place money into the Lifetime ISA, you can only place up to £4000 in a single tax year. You’ll gain 25% of your savings from the government – the 25% depends on how much you add every year, not the total balance of your account.
Higher returns offer
Many providers offer higher interest accounts at the start of the new ISA season to attract new customers. This can be a good method to find a new home for your savings. Although rates have slightly increased recently, they still may be unappealing to many. You may want to set your eyes on a Lendwise IFISA, where you can earn up to9% p.a.*
Placing your money in there at the beginning also means it’s there for longer, therefore a higher chance of earning interest for you in the long run.
Take advantage of compound interest
The mathematical phenomenon which is compound interest means that your investment can grow at a larger and faster rate. Albert Einstein stated “Compound interest is the eighth wonder of the world”, adding to a quote by Benjamin Franklin, “Money makes money. And the money that money makes, makes money”. This means that if you keep the returns on your investment in the account, you’ll make more money. The more you repeat the cycle, the more money you can potentially make.
Avoid the last-minute traffic jam
Another reason to invest early is to avoid last-minute panic. Opening an ISA is not always instant and neither is depositing money. Sometimes it can take weeks to transfer the money, especially if you’re transferring funds from your existing ISA into a new one. To avoid last-minute stress, it’s recommended to start earlier so it’s one less thing to worry about at the end. Just remember to note how much you invested so you don’t surpass the allowance limit.
Increase your emergency pot
We never know what’s around the corner. The last couple of years have shown us to expect the unexpected. Investing earlier and regularly into a savings account is a good way to build up savings or an emergency pot.
By doing this early, you can put away more money into whatever your savings goal is. This is because if you put it off until the end of the year, you may find you need to place that money into other things instead. If you do find yourself with money to put away, it’s usually better to keep it in an ISA rather than having it sit in your current account.
Looking to invest in a positive social impacting ISA, you can earn up to 9% p.a.* tax-free interest with a Lendwise IFISA.
This blog is not intended to be financial advice. If you have any queries, you should seek independent advice from a professional financial advisor before investing your money.
*As with all forms of investment, your capital is at risk. Investments on the Lendwise platform are not covered by the Financial Services Compensation Scheme (FSCS). Investment returns on the Lendwise platform are not guaranteed and past performance is not a reliable indicator of future performance. We do not offer investment or tax advice.
Lendwise Ltd is authorised and regulated by the Financial Conduct Authority under firm registration number 782496. Lendwise Ltd is not covered by the Financial Services Compensation Scheme. Registered in England (Co. No. 10466048) with registered office at 3 More London Riverside, London, United Kingdom, SE1 2AQ. Registered with the Office of the Information Commissioner (No. ZA281795).
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