"ISAs are a tax-efficient way of saving money” - a line that you may recognise from many financial adverts that tend to appear every February and March.
What does this mean in practice?
Put simply, ISAs allow your money to grow tax-free, meaning any interest on cash savings accumulates, and dividends are paid free from Income Tax, and investment growth is provided free from Capital Gains Tax.
This is not new information, and many of you will already be aware that there is also a limit on how much can be invested in ISAs each year. Every individual has an annual ISA allowance of £20,000, and this allowance runs in line with the tax year.
This is why the newspapers, radio waves and even our social media platforms of choice are flooded with adverts during February and March, urging you to use your allowances before they are lost at the end of the tax year.
This often triggers a flurry of end-of-tax-year activity, as individuals rush to use their allowances before the deadline. But is this the most efficient strategy for ISA investing?
Let’s look at the contrasting approaches for investing in ISAs, using the historic performance of the FTSE 100 index as an example of returns achievable.
Dawn, the early investor, invests a lump sum of £3,000 into an ISA every year as early as possible, making full use of her ISA allowance on 6 April and has been doing this for the last 10 years. During this time, she has invested a total of £30,000, and her ISA would now be worth approximately £53,382.
Eve, our last-minute investor, invests the same sums but adopts the approach of investing at the end of the tax year on 5 April, to utilise her allowances before they expire. During this time, Eve has also invested a total of £30,000, and her ISA would now be worth approximately £49,978.
| Investor | Total investment | ISA value |
| Dawn | £30,000 | £53,382 |
| Eve | £30,000 | £49,978 |
Source: FE Analytics, total return of FTSE 100 index in GBP to 5 April 2026.
Past performance is not a reliable indicator of future results. The figures above refer to past performance only.
The obvious main advantage of making full use of your ISA allowance at the beginning of the tax year is that your funds benefit from tax-free growth for the full year, rather than being invested at the very end of the tax year.
The difference between the investors’ savings over this 10-year period provides Dawn with an additional £3,404 of funds on which to benefit from tax-free growth throughout the 2026/27 tax year.
However, this approach is not without risk. Investing in a stocks and shares ISA means your capital is at risk, the value of your investment can fall as well as rise, and you may get back less than you originally invested. If markets fall over the course of a tax year, your ISA could be worth less than the amount you paid in, regardless of when during the year you invested.
One method that we can use to mitigate this risk is to drip-feed funds into the ISA by making regular monthly investments over the course of the tax year. This approach avoids trying to time the market, and whilst your funds’ purchasing power is weaker during periods when the markets are high, it also provides you with more opportunities for investment growth during periods when markets are low by being able to purchase more shares or fund units whilst prices are lower.
What impact would this have on returns?
Let’s look at Tom’s investments.
Tom has invested his funds into his ISA in the same quantities as Dawn and Eve, £3,000 per year over a period of 10 years, but has made his investments via 12 monthly payments of £250 on the 6th of each month. During this time, Tom has also invested a total of £30,000, and his ISA would now be worth approximately £50,371.
| Investor | Total investment | ISA value |
| Dawn | £30,000 | £53,382 |
| Eve | £30,000 | £49,978 |
| Tom | £30,000 | £50,371 |
Source: FE Analytics, total return of FTSE 100 index in GBP to 5 April 2026.
Past performance is not a reliable indicator of future results. The figures above refer to past performance only.
Every individual will have their own approach to investing, and not all methods are suitable for everyone. It does not matter if you are an early adopter, like Dawn, a last-minute investor like Eve, or somewhere in between like Tom.
Making use of your ISA allowance should be one of your top considerations for your savings and investments, but before you make any investments, you should contact your financial advisor for their advice.
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DisclaimerCrowe Financial Planning UK Limited is authorised and regulated by the Financial Conduct Authority (FCA) to provide independent financial advice (FRN 185323). This insight is approved for use by Crowe Financial Planning UK Limited on the date issued. The information on this page is for information purposes only, based on our understanding of legislation and market practice at the time of writing. It does not constitute financial, legal or tax advice, and appropriate professional advice should be sought before any course of action is pursued. Where professional financial advice is sought, fees will apply and will vary depending on the complexity of the individual case. Any advice will be based on personal circumstances, and as with all financial planning, outcomes will depend on a range of factors that cannot always be predicted or guaranteed. The value of investments can go down as well as up and is not guaranteed; investors may not get back the amount originally invested. Past performance is not a guide to future performance. Tax treatment depends on individual circumstances and is subject to change. The FCA does not regulate Trusts, Tax or Estate Planning. The division of pension assets on divorce involves both financial and legal considerations, independent legal advice should be sought alongside any financial planning guidance. Please be aware that clicking links to third-party websites will take you away from the Crowe Financial Planning website. We are not responsible for the accuracy of information contained within linked sites. |
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