8 ISA myths cleared up by Fidelity Worldwide Investment

1. ISAs are risky – FALSE: An ISA isn’t an investment, it is just a “wrapper” that money is kept in to protect it from the tax man. Other examples of wrappers are SIPPs and pensions. Think of an ISA as a box that prevents the tax man being able to touch your investment returns. Any risk comes from the investments that you have chosen to hold within the ISA, not from the ISA itself. Whatever you decide to invest in, cash, shares, bonds, an ISA should always be the first place that any non-pensions savings go.

2. The tax advantages of an ISA aren’t worth it – FALSE: A pound in your pocket is much better than in the tax man’s! For every £100 net saved, an ISA can add between £22 and £25 for a basic rate tax payer, much more for those who pay higher rates of tax.

3. The financial markets are volatile so I don’t know where to invest, I may as well not do an ISA this year – FALSE: If the attractive returns of stocks and shares ISAs appeal but investors are unsure as to where to invest the money then use an ISA Cash Park. Investors can simply ‘park’ the money and decide later where to invest later. That way, the ISA allowance is banked without being forced into an immediate decision of where and when to actively invest the money.

4. Investing in an ISA means I need to fill out a tax return – FALSE: Any tax savings happen automatically within the ISA and ISAs do not have to be recorded on your tax return. You do not even need to tell your HMRC office (the taxman) that you have an ISA.

5. Investing in an ISA means that my money is locked up – FALSE: There is no minimum term for which the investment must be made and the tax advantages start on day one when investing in an ISA. It is always possible to gain instant access to whole or part of your savings, subject to any specific restrictions that may be imposed on a particular ISA product.

6. It is best to wait until the end of the tax year to do my ISA – FALSE: The tax advantages of an ISA start the day that the money is invested so by investing earlier in the tax year you gain more potential advantage. As soon as this year’s allowance is invested, it will start to receive its tax-boost but the longer you delay investing throughout the tax year, the smaller the boost it will get in this year. By delaying your ISA investment when you don’t need to you are simply agreeing to give the Government some of your investment return over a number of months.

7. To reach my financial goals I need to invest a large lump sum – FALSE: If you had invested in a fund that grew by 6% and had a management charge of 1.5% a year and no initial charge the table below shows how much your investment could be worth.

8. It is best to follow the crowd – FALSE: Once you see a bandwagon it is too late! Usually when there is a popular trend it means that a bubble is forming, it is best to remember your own needs and individual circumstances are different. Ask yourself when you will need the money? How much risk you are willing to tolerate? How involved you want to be in the investment? The bet is to use online tools to help you make investment decisions, consult expert tips or if you don’t want to worry about monitoring your investments pick a multi manager or multi asset fund where the portfolio manager picks the asset classes and sectors with the correct weighting aiming to bring steady returns.