With the new tax year just a week ahead, many people will be thinking about the lovely new ISA allowance of £15,240 coming their way and dreaming of the riches they could accumulate if they use it well. But before you even think about your new allowance, have you used up all you can of your current ISA allowance?
Most investors won’t have stashed away the maximum £15,240, as it’s a significant amount, so the chances are you have some allowance left. But remember, whatever you don’t use by 5 April, you’ll lose! So what should you do now?
If you have around £500 or more that you can stick into your ISA and you have a good idea of what you’d like to invest it in, then the answer is pretty easy — though I’m hoping you wouldn’t want to just keep it in a cash ISA, as the interest rates are paltry and are beaten down and trampled on by shares over the long term.
Whether you fancy some big dividends from the likes of BP or SSE, growth potential from ARM Holdings, safety from something like Unilever or Prudential, or whatever… it’s the kind of cash that makes it cost-effective to just transfer it and make the purchase.
Cash now, buy later
But what if you have a smaller sum to spare in the next week? Well, don’t worry, because the date that counts for working out which ISA allowance you’ll be using up is the date you transfer money in — not the date you use it to make a share purchase. So you could easily transfer in a couple of hundred pounds or so this week, then a bit more next month or whenever, until you have a big enough sum to justify the cost of a purchase — and each installment will count towards the allowance in force at the time the cash actually arrives in your ISA account.
The same goes if you know you want to get some more cash into your ISA by the last day on 5 April, but you don’t want to rush into deciding which shares to buy. So just get the cash in now, and then you can think about your purchase at your leisure.
You can’t accumulate cash in a shares ISA for ever, but most providers will allow you to build up relatively small sums until you are able to make a share purchase. In fact, it’s one way of dealing with dividends — you can let them build up until you have enough for a new purchase, possibly topped up by regular monthly savings too.
Using up the current year’s allowance makes the most difference if you’re going to be able to also use your full allowance next year — and if not, then it might not make much difference whether the odd £1,000 or so comes out of this year’s or next’s. But there’s a psychological benefit too.
It’s all about motivation
Evidence shows that many people leave their ISA decisions to the very last minute, and if you put it off until after 5 April then your motivation will be lessened.
“No harm waiting a bit longer now, maybe next month, perhaps when I’m not so busy…“
And before you know it, the months have flown by and you could easily be approaching the end of another ISA year!
The secret to ISA success is to invest as much money as you comfortably can into a shares ISA, and get it in as soon as you can to maximize the long-term benefits.
