Isa earlybirds could gain £30,000 over latecomers
Investing early in an Isa could increase your payout by more than £30,000 over 14 years, according to Fidelity Personal Investing.
Fidelity's data shows that if you had invested a total of £93,080 (averaging almost £6,650 a year) in the same Isa since 2000 - adding to it at the end of each tax year - your total amount would currently stand at £136,909.
However, if you had invested the same amount in the same Isa, but added to it at the start of each tax year, you would now be looking at a very healthy £167,619.
"It's easy to put off making our Isa investments each year, but getting in early can make a significant difference to your Isa savings pot over time," says Mark Till, head of Fidelity Personal Investing.
"Isa earlybirds make their money work harder in the long run, and can achieve more by investing the same amount as latecomers - the numbers speak for themselves."
Clearly the impact of compounding - where the returns you make generate returns of their own - increases with the amount of time investments are held.
However, Keith Churchouse, director at financial planner Chapters Financial, argues that it is not always the best strategy to put funds into an Isa as soon as the new tax year begins.
"As usual there has been an Isa and pensions rush this year, with many clients investing early in their new tax year's Isa allowance," he says. "This is likely to fuel the market and raise prices, so it might be better to wait until summer when the markets are calmer, and invest accordingly."
Churchouse is also sceptical about Fidelity's figures. He agrees that if you pick a very specific fund on a very specific day and stick with it for years, you could come up with these figures. But in real life, savers do not have this kind of hindsight when choosing which Isa to invest in.
"Data can show anything you want," he says. "As long as any growth is re-invested, it can be beneficial to get in early. However, it's critical to keep monitoring your investments. If you're worried about the allocation of the fund, you should think about switching."
This article was written for our sister website Money Observer
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.