The UK is a nation of ISA enthusiasts.
Over 20 million people hold at least one ISA, according to recent data. But are we using these accounts to their full potential?
Tomos Russell, Portfolio Manager at Wealthify, has highlighted three common mistakes he sees frequently among investors and savers.
1. Using Your ISA Allowance Too Late
“Utilising your ISA allowance early in the tax year can help maximise your returns,” says Russell.
“Investing sooner gives your money more time to grow, and allows you to benefit from compounding — essentially earning returns on your returns over time.
“Waiting until the end of the tax year may limit this snowball effect and reduce potential growth.”
By starting early, your savings or investments have the opportunity to work harder for you, even if markets fluctuate.
2. Overlooking Stocks & Shares ISAs
Many savers default to cash ISAs without considering other options.
“While saving money is important, Stocks & Shares ISAs can offer higher long-term returns and help you beat inflation,” Russell explains.
“Investing does carry risk, and returns aren’t guaranteed; however, leaving your money invested over time allows it to ride out market highs and lows.
“Stocks & Shares ISAs benefit from tax-free growth and compound returns, often outperforming cash savings in the long term.”
With the Bank of England’s recent interest rate cut to 3.75% and inflation around 3.0%, traditional savings accounts may struggle to keep up. Russell’s advice: “Save for what’s around the corner – invest for the future.”
3. Not using your full ISA allowance
The annual ISA allowance remains £20,000 per tax year, and it cannot be carried over.
“If you don’t use it before the tax year ends, the unused allowance is lost,” Russell says.
“You don’t have to invest the full £20,000, but regular contributions over several years can have a significant impact on the returns you see.
“Even small, consistent investments in ISAs can compound into substantial savings over time.”
Recommended reading:
How to make the most of your ISA
Start early: Don’t wait until the last minute to invest. Early contributions have more time to grow.
Consider different ISA types: Cash ISAs are safe, but Stocks & Shares ISAs may provide better long-term returns.
Contribute regularly: Use as much of your allowance as you can before the 6th April deadline.
