Saving tips for your ISA

For most UK residents, Individual Savings Accounts are a wonderful way to grow a nest egg, because all capital gains are protected from the tax man.

Whatever amount you invest in your ISA, up to £20,000 for the tax year that started on April 6^th, will be exempt from taxes on capital gains.

You can invest your money in cash, buy stocks and shares, and even opt for innovative finance vehicles like a gold and precious metals mining investment or peer to peer lending.

ISAs have become more flexible over the past few years, and if you don’t max out your yearly allowance, you are leaving money on the table. Because once a new tax year rolls around, allowances from the previous years are lost forever.

The only way to continue growing your ISA money tax free is to leave it inside an ISA. You can use your cash ISA to invest in gold or buy stocks, but you need to ask the new ISA provider to do it. If you were to withdraw your cash ISA money, you would not be able to reinvest it in a new ISA, unless you still have that year’s allowance.

But if that is an old ISA, the tax free savings would be lost.

One thing is sure, it is much easier to save regularly during the year, than to try to max out your ISA during the last few weeks or March.

Having a plan will set you up for financial success. If you want to have £5,200 in your ISA by the end of the year, you need to save £100 per week, or around £15 a day. This is easier than you think, if you set up a direct debit to send the money into savings as soon as you get paid.

Human beings are dotted with limited willpower, and expecting that you will not spend money that is right there during a whole month, and fund your savings account on the 31^st is not realistic.

It is similar to when habits experts recommend you sleep with your running shoes by the side of the bed, so you don’t have to think about going running. But if you postpone the run until after a long work day, chances are you won’t go running until the next day.

So help yourself by making your life easy. Set up an automatic transfer, and commit to saving a set amount, whatever happens. Make it enough to be worth it, but not too much or it will be a stretch and you will stop doing it after two months.

You can also ramp up your savings progressively. Save £30 the first week, £35 the second, £40 the third, etc. until you reach a point where it starts to hurt.

Remember that if you put too much into your ISA at the beginning, you won’t be able to just withdraw and put it back later. The allowance you withdraw is lost for the year.

And if you decide to go for stocks, shares and innovative finance products, invest only money you can leave there to weather the markets’ ups and downs or you could lose part of your capital.