ISA: Savers urged to watch out for ‘pitfalls’ as the bank holiday will affect deadlines

Martin Lewis warns of deadline for penalty-free LISA withdrawal

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ISA accounts can have up to £20,000 invested into them every tax year, which runs from April 6 to April 5. This £20,000 can be put into a single account or split across the four main types of ISAs, which includes cash, stocks and shares, innovative finance and Lifetime accounts.

The build up to this April deadline is known as the “ISA season”, being the period in which savers look out for their best options and plan for the year ahead.

This year, the ISA deadline falls on a deadline which according to analysis from Bestinvest, could leave savers with a “narrower window to act.”

This, coupled with continued coronavirus problems, could create delays for people who choose to subscribe to ISAs with paper-based application forms and/or the postal service.

Bestinvest examined this: “Few people enjoy filling out forms – whether on paper or online – and so it is human nature to leave such things until late in the day even at the best of times.

“But people have had a lot of things to worry about over the last year, so a lot of savers and investors may only turn their minds to such decisions at the eleventh hour.

“The pressure to ‘beat the deadline’ can be stress-inducing, but hurried rather than carefully thought through decisions are unlikely to be the best ones.”

Despite this, Bestinvest went on to explain how the deadlines in place may not be as impactful as many fear: “In truth there really is no need to make a hasty decision on where to invest by the tax-year end, whether for an ISA, Junior ISA or pension.

“No one should feel they are under pressure to make such a choice. This is because midnight on 5 April is simply the final cut-off point for opening or topping up an ISA, Junior ISA or pension account in respect of the 2020/21 tax year, it is not a point at which an investment needs to be made within the account.”

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Sarah Coles, a personal finance analyst at Hargreaves Lansdown, also commented on the upcoming deadline and its effects on savers: “Even in a year when we’ve had spectacularly little to occupy us, just under one in five of us will still leave our ISA to the very last minute.

“And while it’s always better late than never, if you’re rushing for the deadline, there’s always the risk of falling victim to a last-minute ISA pitfall.

“In an ideal world we’d have secured our ISA allowance much earlier, and already be sitting on tax free growth.

“However, when it comes to ISAs, any money you save or invest will be free of tax forever. So if you haven’t used your allowances so far this tax year, it’s far better to take advantage now than to miss out altogether.

“If you’re hurrying to beat the deadline, it’s worth being aware of the potential pitfalls you can easily run into when you leave things to the 11th hour”

The first pitfall could be easily fallen into.

Accidentally opening more than one of each type of ISA

Savers are likely to have multiple ISAs and savings accounts set up and as such, it could be easy to lose track of where one stands.

Sarah urged savers to look into this before making any decisions: “In each year you’re allowed one cash ISA and one stocks and shares ISA.

“If you make a single payment into an ISA at the start of the tax year, you can’t take out another one of the same type before April 6 – unless you’ve arranged a transfer.

“You might think you’d remember if you’ve already opened an ISA, but it’s not always that straightforward: it’s easy to overlook a direct debit into last year’s ISA that you didn’t manage to cancel in time. Before you do anything, check where you stand.”

Admin slip-ups

Various admin problems could pop up as savers rush to take action but fortunately, Sararh highlighted the areas that could prove to be problematic: “If you’re sending a postal application, you don’t have time to correct mistakes like forgetting to sign forms or writing cheques out incorrectly, so pay attention to all the details.

“If you’re applying over the phone or online, make sure you have your National Insurance number as well as a means of payment.

“If you’ve recently moved, don’t leave your application to the last minute. Your ISA provider will do electronic anti-money-laundering checks for you, but recent movers may fail the check, so you need to send more documents in.

“It’s worth getting started as soon as possible, so if something crops up, you have plenty of time to deal with it.”

Know when the last minute is and beat the rush

Sarah concluded by urging savers to get ahead of the deadline as much as possible, even with just these last few days remaining: “Providers’ deadlines and opening hours will vary, especially given that the end of the tax year falls over the Easter weekend, so check when they’re around and when your application needs to be in.

“There’s always a rush in the last few days and hours of the tax year, and in a year when huge numbers of people have the time and money to invest for the first time, 2021 will be no exception. If you need someone to talk you through the process, it’s worth getting in ahead of the rush.

WIt’s also worth seriously considering applying online. The process is quick and straightforward, and as long as you have a debit card with cleared funds and your NI number, you should be able to make your application in minutes.”

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