Avoid the financial desert with an ISA

Individual savings accounts: the end of the tax year is looming.

With less than three weeks to go until the end of the tax year (5 April), there is not much time left to invest your tax-free individual savings account (ISA) allowance. Only the most hermit-like of people will have failed to notice how fund managers, banks and building societies are falling over themselves to bombard us with advertising. Most of them are also planning to keep branches and offices open until midnight on 5 April to cope with, what they hope will be, a last-minute rush.

With less than three weeks to go until the end of the tax year (5 April), there is not much time left to invest your tax-free individual savings account (ISA) allowance. Only the most hermit-like of people will have failed to notice how fund managers, banks and building societies are falling over themselves to bombard us with advertising. Most of them are also planning to keep branches and offices open until midnight on 5 April to cope with, what they hope will be, a last-minute rush.

However, early indications are that they are likely to be disappointed. ISA sales have been slower this time around. Last year was an encouraging one for the Government and fund managers alike. It proved to be a bumper time for ISAs as their popularity reached new heights - despite the fact that they were introduced only two years ago.

The great reduction in investor interest this year has much to do with the fact that there has been nothing similar to the technology boom. Last March, investors, many of whom were inexperienced and investing for the first time, couldn't get enough of technology funds. But when the technology sector crashed in April, they got their fingers burnt as well and sat on paper losses for months.

Apart from there being no obvious focus to replace technology and capture investor interest this time around, the problems the stock market has been experiencing haven't helped matters. The FTSE 100 is seeing its lowest levels for three years, which is deterring investors from buying stocks and shares. Of course, when shares are cheap, it is the best time to invest, but persuading investors of that can be hard.

So fund managers have their work cut out. An additional problem for them is that the public are more likely to approach their bank or building society when looking for an investment, rather than buying through a manager. According to research from Alliance & Leicester, more than two in three people are avoiding fund managers in favour of banks or building societies. These have proved to be most popular among people with mini and maxi ISAs (63 per cent and 40 per cent), tax-exempt special savings accounts (Tessas) (59 per cent), and personal equity plans (Peps) (36 per cent).

But if fund managers or even equities are not your bag, it would be a shame to lose out on investing some money tax- free. You should try to invest your ISA allowance: a mini cash ISA is a good low-risk alternative to stocks and shares. Although you can invest up to a maximum of £3,000 this tax year, as opposed to £7,000 in a maxi stocks and shares ISA, your money is "safe" as it is not invested in the stock market. Early indicators suggest that mini cash ISA sales are more popular than ever this year for precisely that reason.

Mini cash ISAs have the advantage of being more flexible than Tessas, the investment vehicle which they were designed to replace, as your money doesn't have to be invested for a set period of time.

The trouble with making your investment decision at this late stage is that you may make the wrong one. The information available can also be confusing: many ISA advertisements use past performance to sell funds, but this is no guarantee of future returns so investors should be wary.

If you plan to invest in an ISA over the next couple of weeks, the same advice applies as it would if you had taken months to arrive at your decision. You need to have a clear idea as to what your individual investment objectives are, what level of risk you are happy with, and what investments you already have in your portfolio. Only then will you be ready to look at the market and make your choice. This survey should give you some ideas to help you make that decision.

If you are only just deciding what to do with this year's allowance, it is worth bearing in mind that paying into an ISA on a regular basis tends to produce better returns than investing a lump sum. If you are putting in a lump sum, much depends on the state of the market at that time. If you spread your investments over the year, you will go a long way towards smoothing out market volatility and reducing the risks.

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