Five ways to make the most of your Isa pot
WITH the new tax year starting on April 6, time is running out to make the most of this year’s Isa pot. You can save up to a maximum of £20,000 into Isas in the current tax year.
are some tips from Laura Suter, personal finance analyst at investment platform AJ Bell:
1. Work out what you’re saving for
If you know what you’re saving for, it means you’ll pick the right Isa for you. If you need the money in the next five years, you may want to keep it in a cash Isa. But if not you could invest in a stocks and shares Isa in the hope of higher longer-term returns (the value of investments can go down as well as up). Are you saving for a house deposit? If so you could use a lifetime Isa and benefit from a 25% top-up to your money from the Government.
2. Ignore the noise
There’s always going to be a reason to put off investing. But if you’re investing for the long-term you need to get good at drowning out this noise and focus on what you think markets will be doing in five years or 10 years, not the next 10 minutes. It’s notoriously tricky to accurately predict the markets and buy at exactly the right time. And in the time you’re waiting for markets to rebound or for conditions to be just right you could be missing out on returns.
3. Give yourself a 25% boost
If you want to save for your first home deposit or want to top up your retirement fund then make sure you’re not missing out on free cash from the Government. With a lifetime Isa you can get up to £1,000 a year in government bonuses, right up until the age of 50. The lifetime Isa can be opened by people aged 18 to 40, and you can save up to £4,000 each year. You can withdraw the money to buy your first property or once you’re aged 60, but if you take out money for other reasons you may pay a 25% penalty.
4. Shift those dividends into your Isa
If you’ve got some of your Isa allowance left to use and you have investments outside your Isa, it could be smart to move dividend-producing assets into it to avoid getting walloped with a tax bill.
5. Make your income earn you more income
Any dividends from investments in your Isa can be withdrawn taxfree, but if you don’t need the income now you could use them to turbo-charge your returns. If you reinvest them you can buy more shares in the same investment, which can have a dramatic impact on the size of your Isa fund over the long term.