Maxing out ISA now or wait for next month

nuriel

Hi,

Is there any advantage in using the allowance for this year rather than waiting a bit and using the full allowance next month ?

I opened a cash ISA back in september with the maximum allowance in it. I also have an S&S ISA short of 2K to use the full allowance for this year. And I have some money on my regular saving account which I was thinking to use to top up both ISAs to their full allowance next month. This was before I saw and ad suggesting that I could be missing out if I didn't max out the S&S ISA now. Is there a real difference between these two scenarios:
- Add the missing 2K to the S&S ISA now, 3K next month, and standing orders till it is maxed out
- Max out both accounts next month.

Sorry if this sounds silly, but I am struggling to understand the difference it could make as I will not be paying any tax whether I transfer now or in 2 weeks (this might be where I am wrong).

While I am there, I would like to know your preference between Cash and S&S. S&S seems more volatile, but gave a good return over the year, so I am considering putting everything in an S&S. I do not expect to use this account for at least the next 2/3 years so it might be a good bet.

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Nuriel

kingmonkey

This is a difficult question to answer really as it depends on your circumstances and your goal.

Its my opinion that 2/3 years maybe to short term to risk in shares and bonds, but your risk tolerance maybe different.

If you dont use the £2000 this year you basically just lose out on this year's tax free allowance. Depends how much this is worth to you, and seeing as it will be put into shares for 2-3 years it would be difficult to work out how much you would save in tax. I suspect it would be very little if anything at all as you would really only be saving on the capital gain tax.

tofu

Ask yourself whether you are likely to use up or exceed next year's allowance. If yes, it would be a good idea to use up this year's allowance fully, by paying in before April 5th. If you plan to stay below the limit next year anyway, it does not make a difference.

SG27

Fill them up as soon as possible. If the money is currently sitting in another account then you are paying tax that you don't need to.

Lokolo_2

SG27 wrote: »

Fill them up as soon as possible. If the money is currently sitting in another account then you are paying tax that you don't need to.

Or it might also be earning a rubbish rate. All the more reason to put money into ISA's as soon as you can to Max out the tax-free interest :j

jimjames

SG27 wrote: »

Fill them up as soon as possible. If the money is currently sitting in another account then you are paying tax that you don't need to.

Definitely.
ISA allowances are a use it or lose it allowance. If you miss this years allowance you can't use it in future.

nuriel

Thanks for your answer guys. I think I'm going to use the full allowance for this year and keep my standing orders for next year then.

@Kingmonkey: If 2/3 years is a short term investment, how long would you recommend before accessing your savings while investing in an S&S ? Maybe I got it wrong from the beginning and ISA is not the right vehicule since I am planning to use this money by 2015... Pretty sure it is not a bad choice but feel free to extend a bit on that.

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Nuriel

Porcupine

Don't forget, you can put money in the S&S ISA but don't have to buy investments with it straightaway. You can leave it there as cash (won't be earning much interest though) until you decide what to buy with it.

There's no hard and fast rule against investing for less than 5 years, but it just increases the risk of losing if you need to take the money out soon. For example, the most recent FTSE100 peak was in July 2007, when it was 6700. It's now 5800. If you'd bought the FTSE in 2007 and were forced to sell today, it would have lost money. The previous time it was 6700 was in August 2000 - so you'd have to have waited 7 years to break even (and lost money if you waited any longer).

OTOH if you bought the FTSE in March 2009 when it was 3500 and sold today you'd make a 66% profit. However that only matters if you're forced to sell on a particular date. If not, you can always hang on a bit and see if it'll recover. For example, if you bought in Sep 2008 at 5400 before the Lehman Bros fall you would have had to wait until Jan 2010 for it to recover (ie make no loss but no profit either). For any randomly selected starting point, the longer you leave it in the market, the greater the chance of recovering from any falls.

This is just an example: if you did track the FTSE100 you'd get dividends too. And you can improve your chances a bit by paying just a little notice to the news (eg selling when you heard about this 'credit crunch' thing).