The tax burden on UK consumers is set to rise sharply from 6 April through a combination of freezes on personal allowances and increases in National Insurance and Dividend Tax rates. This means that it is now more important than ever to take advantage of your annual ISA allowance.
An ISA can protect your money not just from the taxman but also from the effects of inflation, which has recently hit a high of 6.2%.
If you have an ISA or are considering opening one, leading online trading and investment platform Saxo Markets has six simple but very useful tips to help boost your ISA returns for a more secure financial future.
[top_pitch]
1. Just open an account
According to Saxo Markets, you do not need to decide on your investments right now in order to secure your £20,000 annual ISA allowance. You can open an ISA, keep your funds in cash, and then return once you’ve decided how to invest.
This can help you avoid losing your annual allowance (which you will if you don’t use it since it doesn’t roll over).
It’s also worth mentioning that with investment ISAs, you don’t have to research or pick your own investments if you don’t want to. Instead, you can sign up with a robo-advisor who will build you a personalised ISA portfolio based on your goals and risk tolerance.
Check out our comparison of some of the top-rated robo-advisors in the UK right now to learn more.
2. Contribute regularly
When it comes to using an ISA to save or invest, you don’t need a large sum to get started. You don’t have to put the full £20,000 into an ISA all at once, for example. Instead, you can make small contributions throughout the year. Smaller contributions will still help your savings grow.
Furthermore, contributing a set amount on a regular basis to a stocks and shares ISA can help take the stress out of natural stock market fluctuations.
As Saxo Markets points out, the value of investments fluctuates in the short term. But by making regular contributions, you can avoid the risk of putting all your money in at once, say, just before a big drop.
Most stocks and shares ISA providers, including the Saxo Markets Stocks and Shares ISA, will actually allow you to set up an automatic plan to make regular contributions. Alternatively, you can make your own contributions on a fixed schedule.
3. Take appropriate risks
In the current environment of low-interest rates and high inflation, people holding their savings in a cash ISA risk seeing their money lose value in real terms.
If you can afford to lock your money away for a significant period of time – say, five years – consider investing a portion of it in the stock market through a stocks and shares ISA.
Stocks, while riskier than cash savings, have historically delivered higher returns that beat inflation, particularly over the long term. To learn more, check out our list of top-rated stocks and shares ISA providers in the UK.
[middle_pitch]
4. Practice diversification
If you decide to invest in a stocks and shares ISA, make sure you don’t put all of your eggs in one basket by practising diversification. This entails investing across a range of countries and sectors, as well as various asset types such as stocks and shares, government bonds and commodities.
This will help ensure that your portfolio is able to ride out any market downturn in a specific asset class, sector or region of the world.
5. Review your old ISAs
ISAs have been around for almost 23 years. It’s possible that you have an old ISA that you might have forgotten about or that you no longer keep tabs on. Your old cash ISA might be providing below-market returns, or your stocks and shares ISA might not be in the right funds for your circumstances.
With this in mind, it may be worth reviewing these old ISAs and, if necessary, transferring them to a new provider to get a better deal.
Don’t withdraw the money, however, as you will lose the ISA tax benefits. Instead, ask your new provider to arrange the transfer.
6. Re-invest your dividends
Part of the beauty of investing via an ISA is that dividends from your investments are not subject to tax. But if you don’t need the money right away, you can reinvest it back into your ISA. This will help your pot grow even more in the long run.
That’s because each time you reinvest your dividends in your portfolio, you’ll receive even more dividends in the next dividend payout. You can then reinvest these dividends into your ISA again, with the cycle continuing indefinitely.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
