Five questions: Investing in an ISA in April

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The Independent Online

Is it better to invest at the beginning of the tax year?

By opening an ISA at the start of the tax year you effectively receive 12 months' extra growth than if you leave it until the last minute to use your annual allowance.

With a cash ISA this means a year's extra tax-free interest. With a stocks and shares ISA it offers the potential for extra growth albeit share prices can fall as well as rise, so you may find that your money is worth less in a year's time. That said, if you are investing in equities you should be taking a long-term approach and even if the value of your investment does fall initially, it should recover over time.

What if I don't have a lump sum to invest?

It doesn't matter. You can save on a monthly basis rather than investing your full allowance in one go. Many advisers recommend this strategy if you opt for a stocks and shares ISA because you don't have to worry about timing the market.

Why should I use my full allowance?

ISAs offer a valuable tax break that's well worth taking advantage of, particularly if you are a 40 per cent taxpayer or in the new 50 per cent tax band.

Even if you can't afford to save the full amount, put what you can into an ISA. And it doesn't matter if you don't want to invest in the stock market. Cash ISAs are like any other standard savings account – the difference being that you don't pay tax on the interest.

How much can I invest?

We can all now put more into ISAs as the annual allowance rose from £7,200 to £10,200 on 6 April. Up to 50 per cent of that – £5,100 – can go into a cash ISA. The over 50s have benefited from this higher allowance since last October.

What about my existing ISAs?

If you have ISAs from previous tax years then review the returns you are receiving on them. If you're money is in cash ISAs you can transfer it to another cash ISA, or move it into stocks and shares, without losing the tax-free status.

You can also transfer money held within stocks and shares ISAs although you can't switch from equities or bonds to cash – you will have to choose another non-cash asset.

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