Dmytro Spilka

Individual Savings Accounts (ISAs) are rapidly growing in popularity, and the number of savers effectively growing their wealth has been increasing in recent years. 

In the 2022/2023 tax year, the number of individuals with £1 million or more in their ISAs tripled to 3,180, illustrating just how far you can take your £20,000 annual allowance with some tactical saving and discipline. 

Each tax year, beginning on the 6th April, our ISA allowances reset, opening the door to 12 more months of tax-free savings or investing. Because Individual Savings Account holders aren’t liable to pay income tax or capital gains tax on their ISA earnings, the strategy has won over plenty of UK adults keen to see their money stretch further. 

Whether you prefer to save your earnings in a Cash ISA, which works similarly to a savings account, or invest with a Stocks and Shares ISA, there are plenty of options to consider in order to build your wealth for that all-important nest egg or save for a one-off purchase. 

But how can you make the most of your ISA allowance before the April 5th deadline? Let’s take a deeper look at ways to make the most of your tax-free savings each year: 

Get Started Early

Not everyone can find themselves in a position to invest their £20,000 allowance on the 6th April each year, but if you’re in a strong enough financial position, getting your investments in early can make a significant difference later down the line. 

Investing at the very start of each tax year can make significantly more gains in terms of interest than waiting until the end of the year. In fact, research suggests that if you’re able to invest £20,000 on the first day of the tax year for 25 years, you’ll make around £56,000 more (at an assumed rate of 5.5% return) than if you were to wait until the last day of the tax year. 

While most of us wouldn’t be able to feed so much money into our ISAs in one go, the point still stands that early birds can benefit significantly from making a fast start. 

Always Check Your Allowance

Be sure to keep an eye on your ISA allowance as the 5th April deadline approaches. Most account holders don’t plan on reaching their Individual Savings Account allowance limit each year, but you should always be looking at how your current rate of savings aligns with your financial goals. 

If you’re planning to invest more money next year, it could be worth depositing more into your ISA before the April deadline to ensure you don’t fill your allowance faster in the next tax year. For Stocks and Shares ISAs, there’s no need to allocate your deposits into investments before the tax deadline, so having them sit in your account could be better than waiting until it’s too late. 

You should also cross-check your different ISA allowances. While Cash ISAs and Stocks and Shares ISAs have an annual allowance of £20,000, Lifetime ISAs have a lower allowance of £4,000. Be sure to always know where you stand with your allowances and investing goals. 

Transfer Existing ISAs

Although transferring ISAs from previous tax years won’t impact your current ISA allowance if you let the new and current providers handle the transfer for you, it can be an essential way of gaining a more comprehensive understanding of where your money is and how it’s invested. 

When investing in your ISA, you’re likely to have an idea of what you want to do with the money in the long term, but this can be difficult if you don’t know where your different accounts are and what your portfolios are focused on. 

Before using your remaining allowance, consider transferring your existing ISAs to gain a more comprehensive overview of your money until now. Having your funds together in one ISA could also save you money on fees and charges.

Cash or Stocks and Shares?

Using your ISA allowance in an intelligent way ahead of the April deadline will also mean knowing how to invest your money. 

While Cash ISAs serve more as savings accounts and Stocks and Shares ISAs offer access to wider investment options, it’s entirely possible to open both types of accounts and split your annual allowance between them. 

Although Stocks and Shares ISAs have historically returned more than their lower-risk Cash counterparts, weighing in at 9.64% compared to 1.21% over the past 10 years, some investors prefer to have a level of predictability.

Deciding how to invest your funds can make a big difference in shaping your strategy ahead of the April tax deadline. 

Making Your ISA Work on Your Terms

Individual Savings Accounts are always a great component of any investment strategy. 

By caring for your annual allowance and incorporating compounding into your strategy, it’s possible to make your ISA savings stretch further, helping to grow your wealth more efficiently and make the most of the tax-free advantages of both Cash and Stocks and Shares ISAs.