However, as people hurriedly put cash to work in an attempt to utilise their ISA for this year before time runs out, many new or first-time investors might be feeling left behind.
In light of this, FE Trustnet speaks to a team of financial experts to bust any myths that yourself, or a friend or family member who isn’t au fait with investing, may have heard.
Myth one: Stocks and shares are for seasoned investors
Nutmeg’s Nick Hungerford said: “Having a stocks and shares ISA doesn’t mean you need to keep tabs on the financial markets and manage your investment as global stock market prices fluctuate, as with investments your capital is at risk. Typically, with a stocks and shares ISA, your money will be invested in a fund that tracks a stock market or group of companies.”
“‘Stocks and shares ISA’ is actually a misleading label. A stocks and shares ISA can, in fact, be invested in anything from equities to corporate bonds, gilts to gold, unit trusts to wheat futures.”
Myth two: You have to choose between cash or investments in an ISA
Until last year, there were restrictions in place about how much you could put in a cash ISA and how much could be invested in a stocks and shares wrapper.
However, in last year’s Budget the chancellor removed these restrictions, giving complete flexibility for investors to allocate between cash and the stock market, so long as it remained within the overall limit.
“This flexibility is hugely beneficial as it gives savers the option of increasing or decreasing risk with their portfolio as they see fit and as their circumstances dictate,” Apollo Multi-Asset’s Ryan Hughes explained.
“With markets at record highs, this flexibility could prove to be hugely powerful for savers who have made good gains from the investment element of their ISAs over the years and want to lock some of it in by moving it back to a cash ISA.”
Myth three: It’s safer to save into cash ISAs
According to research from BlackRock, 68 per cent of ISA holders who are looking to retire in the next decade only save into cash ISAs, meaning their savings have been victims of inflation during recent years.
What’s more, people who have cash savings and haven’t used their cash ISA allowances in the past will have paid tax on their interest.
BlackRock’s Alex Hoctor-Duncan says that savers must be aware that, in order to receive an income substantial enough to last through retirement, they have to work their cash to generate a viable income.
“The current low inflation levels should not lull people into a fall sense of security. Cash has lost almost 30 per cent of its real value in the past 10 years because of inflation. Even if a saver has been quite nimble in chasing the best deposit and cash ISA rates, they would still have made a loss in real terms of 6 per cent,” he explained.
“The changes that the Government introduced, allowing savers and investors to merge cash and stocks and shares ISAs to a limit of £15,000, should be celebrated. However, nearly half of ISA holders (45 per cent) said they would hold more cash as a result.”
“Britons need to make use of their ability to build their savings and allocate to stocks and shares and not to use cash as a safety blanket, because it won’t keep them warm later in life.”
Myth four: Stocks and shares ISAs are no good for basic-rate tax payers
Hargreaves Lansdown head of communications Danny Cox points out that doesn’t cost any more to invest in an ISA than it does to invest outside of it and when your investment grows it will be protected from higher-rate taxes or capital gains.
“This is a myth that annoys me,” he said. “The argument is that the tax position on dividends is the same for a basic-rate tax payer, whether they’re invested in an ISA or not, because very, very few people pay capital gains tax.”
“Why go for an ISA, why not just hold your funds or shares outside of an ISA? Well, the reason you do that is because it doesn’t cost any more to invest in an ISA and it often costs you less than holding funds outside of an ISA. So you kind of get the tax breaks for free.”
“The real benefit behind an ISA is that you’re ring-fencing your investment and your cash from tax, so you’re building up your own tax safe haven. As your investments grow, there could well be a time in the future where you would pay tax at the higher rate, or you would pay capital gains, so start sheltering it in an ISA now. Even when the tax benefits might not seem great, over time they will accumulate.”