You are here: Home - Investing -

Six common ISA myths dispelled

Written by:
Still unsure of whether an ISA is right for you? We separate the lies from the truth to help you make up your mind.

1) ISAs are risky – FALSE

An ISA isn’t an investment, it is just a “wrapper” that money is kept in to protect it from the tax man. Other examples of wrappers are SIPPs and pensions. Think of an ISA as a box that prevents the tax man being able to touch your investment returns. Any risk comes from the investments that you have chosen to hold within the ISA, not from the ISA itself. Whatever you decide to invest in, cash, shares, bonds, an ISA should always be the first place that any non-pensions savings go.

2) The financial markets are volatile so I don’t know where to invest; I may as well not do an ISA this year – FALSE

If the attractive returns of stocks and shares ISAs appeal but investors are unsure as to where to invest the money then you could use an ISA Cash Park. Investors can simply ‘park’ the money and decide later where to invest later. That way, the ISA allowance is held without being forced into an immediate decision of where and when to actively invest the money.

3) Investing in an ISA means I need to fill out a tax return – FALSE

Any tax savings happen automatically within the ISA and ISAs do not have to be recorded on your tax return. You do not even need to tell your HMRC office (the taxman) that you have an ISA.

4) Investing in an ISA means that my money is locked up – FALSE

There is no minimum term for which the investment must be made and the tax advantages start on day one when investing in an ISA. It is always possible to gain easy access to whole or part of your savings, subject to any specific restrictions that may be imposed on a particular ISA product. If you withdraw money from your current tax year ISA you will lose that part of your allowance.

5) It is best to wait until the end of the tax year to do my ISA – FALSE

The tax advantages of an ISA start the day that the money is invested so by investing earlier in the tax year you gain more potential advantage. As soon as this year’s allowance is invested, it will start to receive its tax-boost but the longer you delay investing throughout the tax year, the smaller the boost it will get in this year. By delaying your ISA investment when you don’t need to you are simply agreeing to give the government some of your investment return over a number of months.

6) It is best to follow the crowd – FALSE

Once you see a bandwagon it is too late! Usually when there is a popular trend it means that a bubble is forming, it is best to remember your own needs and individual circumstances are different. Ask yourself when you will need the money? How much risk you are willing to tolerate? How involved you want to be in the investment? One way is to use online tools to help you make investment decisions, consult expert tips or if you don’t want to worry about monitoring your investments consider a multi-manager or multi-asset fund where the portfolio manager picks the asset classes and sectors with the correct weighting aiming to bring steady returns.

Tom Stevenson is investment director at Fidelity Worldwide Investment


Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Autumn Statement: Everything you need to know at a glance

Yesterday Chancellor Jeremy Hunt made his first fiscal statement in the role, outlining a range of tax measure...

End of Help to Buy: 10 alternatives for first-time buyers

The deadline for Help to Buy Equity Loan applications passed on 31 October. If you’re a first-time buyer who...

Moving to an energy prepayment meter: Everything you need to know

As households struggle with the soaring cost of energy, tens of thousands of billpayers are expected to move o...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week