There are plenty of good reasons for using your ISA allowance and just as many bad excuses for not using it. Let’s put five of them to bed.
Myth 1: Stocks & Shares ISAs are only for the wealthy
You think the stock market is only for the rich? Think again. Most ISA providers will let you transfer small amounts of cash into your ISA every month by direct debit, and you can invest it when it builds up to a suitable amount.
That amount needn’t be large either, and there are ISA providers who charge as little as £1 to invest £200 in shares.
But you need to be in the know to ferret out the likely winners, don’t you? You might be surprised at the top shares that ISA millionaires actually hold — they’re famous big names that everyone knows.
Myth 2: An ISA is a bad choice when interest rates are low
On the contrary, times of low interest rates make investing in an ISA an even more attractive option — providing it’s a Stocks & Shares ISA.
Investing in a Cash ISA at low interest times can be a bad idea, but I reckon investing in a Cash ISA at any time is a waste. I explained here how a Stocks & Shares ISA is very likely to beat the pants off a Cash ISA over the long term.
Myth 3: An ISA only makes sense if you’re a taxpayer
Why invest in a tax-saving scheme when you’re not a taxpayer? And what’s the point of a Junior ISA for your child when they won’t have enough to pay tax?
Well, it’s not your taxpayer status now that counts, it’s the position you are going to be in when you need to start taking the cash out again.
And your child? Investing their whole Junior ISA allowance every year from birth could be worth £132,000 by age 18 if you can achieve a feasible 6% per year. And they’d never pay a penny in tax on any future gains on that for the rest of their life.
Myth 4: You can’t take cash out and put it back agin
This used to be true, but the rules have been relaxed a little. If you’ve already bought shares with some of this year’s allowance you can’t sell them, take the money out, and reuse that part of the allowance again later. But cash, before it’s invested, can be withdrawn and put back later without affecting your allowance — but only if your ISA provider offers that option.
That’s not of great benefit, but it does at least mean that you have less need to hold back cash from your ISA in case you need it for something else.
Myth 5: There’s no point when there’s a new allowance just coming
There’s a whole new allowance of £20,000 coming on 5 April, so what’s the point of rushing to use up your old allowance?
Well, getting your cash invested in shares as early as you can and holding them for as long as you can is the key to accumulating a big retirement pot. And if you put it off now, how long will it be before you start making an effort towards your 2018-19 allowance?
Will you be back at the same point next year thinking there’s no point as there’s a new allowance just coming?