There are many benefits to ISAs, most notably high rates of interest and tax free saving. By putting your savings into an ISA you can really make them work for you. However, there are common mistakes that many people commit when saving with an ISA.
Here we outline some of the main problems and let you know how to avoid them.
Showing Too Much Caution
The majority of ISAs opened are Cash ISAs; and while this offers the chance to save £5,640 tax free, alone they don’t offer you the opportunity to secure the highest return. To really do this, you should look into opening an investment ISA from a provider like Sippdeal.
Choosing the best investment ISA for example offers the chance to invest your ISA pot into stocks and shares as well as corporate and government bonds, amongst others. Over the long term, investing in this manner is likely to provide you with an inflation beating return.
For the current tax year, you can invest a total of £11,280 into a Sippdeal investment ISA or you can split it half and half between cash and stocks and shares. So, if you only open a cash ISA, you immediately lose out on your full investment ISA allowance.
Paying More Than You Need To
Before you open an investment ISA, it’s important to understand all of the potential investments in relation to the charges. Charges can eat into the returns of your investment, so it’s vital that you choose the right provider to keep the potential for returns as high as possible.
Getting Your Strategy Wrong
When you open an investment ISA, it’s important that you get your strategy right and don’t make too many mistakes. Many try too hard to predict the market, trying to purchase when the prices are low and sell when the price is high. This can be costly, with many opting simply to trust the value in the market a few years down the line and holding their investments rather than selling.
Not Making Use Of Your Total Allowance
This is one of the biggest mistakes you can make. Your ISA allowance lasts for the tax year, once the year is over you can’t carry any of your allowance over if you haven’t used it; it’s gone. Whether you have a cash or stocks and shares ISA you must make sure you use up the allowance. If for example you save £3,000 in a cash ISA and keep another £3,000 in your savings account, you’ll lose out on half the potential tax free savings available to you. If you can afford to use the full allowance; use it.