An ISA is an excellent idea that offers each and every one of us the ability to save money without paying any tax on that money. There are a few mistakes however that are easily made, and by listing them here, we hope to help you avoid them.

Mistake one – not having an ISA.
Ok this might sound a bit daft because if you’re reading this then you’re probably looking at opening one, but don’t make the mistake of just thinking about it, actually get one sorted out and start using it. Each of us is entitled by law to save a reasonable amount of money each year in an ISA – this year it is £10,200 with up to half of that being allowed as a cash ISA, or up to the full amount in a stocks and shares ISA. ISA interest rates may not be brilliant at the moment (most are between 3 and 3.5% currently), but as you avoid paying tax on this money, you do at least get the full benefit of the rates offered.

Mistake two – not using all your allowance every year.
As I’ve already said this year, the maximum you can invest in an ISA is £10,200, but from next year, you will be able to invest £10,680 and once again up to half of that can be invested in a cash ISA. Now not all of us have £10,000 we can invest every year, but it is important to make the most of these allowances and invest as much as you can up to this amount so that you reap the full benefit of the savings.

Mistake three – opting for stocks and shares OR cash.
Some people mistakenly believe that you have to choose one or the other, but in fact, you can invest in both if you want to. You can also choose a different provider for each meaning that you can choose the best deals available. All you have to do, is make sure you don’t exceed your allowances.

Mistake four – Not starting to invest young enough.
It seems that according to research recently carried out by Hargreaves Lansdown 64% of people they surveyed didn’t begin investing in an ISA till they were over 50 years old, and only a very small 5% were under 35 when they began saving money in an ISA.

The thing is that the younger you are when you start using an ISA the more you save over your lifetime! Even if you can’t afford the full allowance each year, it’s still worth investing what you can and many ISAs can be opened with just a £1 deposit. Even more encouraging is the fact that if you go with an easy access cash ISA you don’t lock your money away so it’s not accessible, you’ll still be able to withdraw it penalty free if you need to. All you need to remember is that you can only deposit that maximum amount each year once, so if you withdraw money and have already reached your allowance limit, you won’t be able to replace it in the ISA till the next financial year.

Mistake five – failing to shop for the best interest rate.
Just like with any bank account interest rates change from year to year, and it’s important to make sure that you shop around each year and transfer your money to where it will earn the most. Just remember to check that the accounts you look at DO allow you to transfer in from an existing ISA.

Mistake six – waiting till the end of the tax year to open an ISA.
There is no reason to wait till the end of the tax year to open an ISA whether it is your first ISA or you are transferring to a better rate. In actual fact as this is often the time people think about it, it is often the busiest time, and so there’s a chance that you might miss out on the end of tax year deadline. So, look earlier if you can and avoid the ISA rush.

Useful links
http://www.isa.co.uk/
http://www.hmrc.gov.uk/leaflets/isa.htm