Open season for investing as Isa cut-off approaches

IF YOU are keen to save or invest free of tax inside this year’s Isa allowance, now is the time to act because the annual deadline is a little over a month away and closing fast. This year you can put away up to £20,000, with most people either saving in a Cash Isa, or investing in a Stocks and Shares Isa.

You do not have to invest the full amount, and putting away a smaller sum is better than doing nothing. So how do you take one out and where should you put your money?

If you do not use your 2019/20 tax year Isa allowance by midnight on April 5 you will have lost it for good.

This is a real incentive to take action, even though the end-of-year rush known as the “Isa season” is not as urgent as it once was.

That is because from April 6 you get a new Isa allowance, also worth £20,000, which is far more than most people can afford to put away.

Nevertheless you should still aim to beat this year’s deadline, instead of putting it off.

Chase devere chartered financial planner Patrick Connolly said it is always worthwhile putting money away tax-efficiently: “Investing this financial year also leaves your full Isa allowance available for next year, in case your circumstances change and you are able to invest more than you expect.”

KING CASH

While tens of millions still have a Cash Isa, they are less popular than they were before as interest rates have plunged over the last decade.

Challenger banks Paragon and Shawbrook offer some of the best easy access rates, but they pay just 1.21 per cent. Skipton Building Society pays 1 per cent, although this rises to 1.30 per cent if you invest £50,000 or more. That is still well below inflation at 1.80 per cent, though.

You can get a slightly higher return if you are willing to lock your money away for a set period, but Moneyfacts.co.uk finance expert Rachel Springall warned that fixed-rate Cash Isas are coming under pressure too.

The average one-year fixed Isa pays 1.12 per cent, down from 1.37 per cent last year: “This suggests we are facing an uncertain Isa season, which is bad news for savers who may be hoping for better deals by April.”

You could get 1.70 per cent by fixing with Principality Building Society for five years. Shawbrook pays 1.45 per cent fixed for two years, 1.50 per cent over three years and 1.55 per cent over five.

It is also worth checking any existing Cash Isa holdings, to see if they are still good value. Some now pay close to zero, so consider transferring these into a new Isa.

INNOVATIVE OPTION

The Innovative Finance Isa is an option for those who are willing to take on greater risk in return for a potentially high reward.

This puts your money into peer-to-peer (P2P) loans, which go to individuals, businesses or property developers, depending on the scheme.your capital is at risk and unlike the Cash Isa, you do not get protection under the Financial Services Compensation Scheme.

Last year, property platform Lendy collapsed owing £165 million and the regulators are cracking down.

You could test the waters with established platforms Zopa, which pays from 3.4 per cent, or Ratesetter, which pays from 3 per cent.

TAKING STOCK

The stock market is also risky, but Connolly said you are likely to get a better return from a Stocks and Shares Isa than a Cash Isa over the longer run, but with greater shortterm volatility: “Only invest money you can leave for at least five years, preferably longer.”

Many will be nervous of equities, amid uncertainty over the impact of the coronavirus on share prices.

AJ Bell investment director Russ Mould said markets are pricing in a short-term impact with a rapid return to growth once the virus has been contained: “It remains to be seen if it can be brought under control, and how much economic damage it may cause.”

The best way to invest in a Stocks and Shares Isa is via an online platform such as AJ Bell, Chelsea Financial Services, Fidelity Fundsnetwork, Hargreaves Lansdown and Interactive Investor, which allow you to trade thousands of shares or funds quickly and cheaply.

These work best for DIY investors confident enough to make their own decisions, otherwise consider taking advice. Popular funds include Fundsmith Equity, Lindsell Train Global Equity, Scottish Mortgage and thevanguard Lifestrategy range of low-cost index trackers.

Darius Mcdermott, managing director at Fundcalibre.com, said do not just choose last year’s best performer or top seller, but spread your money across a balance of funds covering different global markets.

Those aged 18 to 39 can take out a Lifetime Isa, which allows you to invest up to £4,000 a year, and claim a government-funded 25 per cent bonus worth a maximum £1,000, with the money used towards a property deposit or retirement.

Parents and grandparents should consider a Junior Isa for the under 18s.

You still have six weeks to make your Isa choices, but do not leave it too long, as the clock is ticking.

‘Beating this year’s deadline leaves your full Isa allowance available for next year’