The early ISA investor catches the returns

Lisa Caplan

3 min read

Investors who wait until the end of the tax year to contribute to an ISA could be missing a trick. Being an ISA early bird could help you maximise your returns, particularly with the £20,000 ISA allowance for the 2019/20 year.

A lot of people put off making ISA contributions until the very last minute, sometimes waiting until just before midnight at the end of the tax year on 5th April.

However, if you have the money available, our research shows that over time you could be better off investing your full ISA allowance – or as much as you can afford to – as early in the tax year as possible.

That way you can immediately start to benefit from compound returns, and the tax benefits and investment returns can mount up year-on-year.

Invest early and reap the rewards

It’s been 20 years since the ISA first came into being. Since April 1999, UK savers and investors have been able to help their money go a little further with the annual tax-free benefits. If you’d contributed £6,000 to a medium-risk stocks and shares ISA on the first day of each tax year since 6th April 1999, you could have accrued £7,297 more than if you’d waited until 5th April the following year.

It still pays to invest regularly

Of course, most of us don’t have £20,000 – the current annual ISA allowance – sitting around in a bank account waiting to be invested in an ISA. But the good news is that you can still benefit from compounding returns by investing small amounts regularly.

Our calculations show that contributing monthly is likely to generate better returns over the long term than leaving it to the last minute and making a lump sum contribution. For example, if you’d contributed £500 every month since 1999, you could have accrued £4,940 in additional returns compared to making a lump sum payment at the end of the tax year.

Making monthly contributions helps you get into a good saving habit, so you can look past daily fluctuations towards your long-term saving goals.

Consider getting in early with a LISA, too

If you’re eligible and putting money aside for your first home or your retirement, then a Lifetime ISA (LISA) might be right for you. UK residents aged between 18 and 39 can open one and deposit up to £4,000 per year until their 50th birthday. For every pound you contribute the government will add 25% — in other words, a maximum bonus of £1,000 every tax year until you’re 50.

If you invest in a stocks and shares LISA with Nutmeg, we’ll invest that extra 25% on your contributions as soon as they come in, whereas other providers may hold that bonus in cash. Investing the bonus right away means your overall pot has more time in the markets and has a better chance of benefitting from compounding over time.

Be an early bird

Remember, whichever type of ISA works for you, the sooner you start saving, the sooner you’ll be on the way to reaching your financial goals.


Nutmeg calculations using data from Macrobond AB. Market indices used are FTSE All Share total return index and BofAML Gilts total return index. Calculations based on each contribution invested 60% in UK equities and 40% in UK government bonds. Returns are market index returns less fees of 1.05% per annum. Monthly calculations are based on an investment on the first day of the new tax year and at the start of the next month thereafter. Data from 5/4/1999 to 31/3/2019.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance.

A stocks and shares ISA or LISA may not be right for everyone and tax rules may change in the future. If you’re unsure if an ISA is the right choice for you, please seek financial advice.

  • A Lifetime ISA may not be right for everyone
  • You must be 18–39 years old to open one.
  • If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll pay a 25% government penalty. So you may get back less than you put in.
  • Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension.
  • If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer-matched contributions.
Was this post helpful?
Let us know if you liked this post
Powered by Devhats
Lisa Caplan

Lisa Caplan is head of financial advice at Nutmeg. She combines her wide experience of developing brands for blue chip companies with eight years as a chartered financial planner delivering financial advice to a range of people at different stages of their lives.

Other posts by