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The ISA deadline is Sunday. Here’s what I’d do now

With the ISA deadline just days away, you’ll need to hurry to make the most of this year’s allowance. You can put up to £20,000 into an ISA each year. When the tax year ends on 5 April, any of this year’s unused contribution room is lost forever. Investors should consider opening an ISA and making the most of their allowance.

Savings grow tax-free in an ISA and there is no tax to pay on withdrawals. With the current tax year ending on Sunday, investors will have to be quick to take advantage of their current tax-free savings allowance.

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Tax-free savings

Most people will be familiar with Cash ISAs. Although these are safe places to put your money, as you won’t lose any of your investment, they are not entirely risk-free. Over time, inflation drives up the price of goods like cars and services like subscriptions. If the interest rate that a Cash ISA offers is below inflation, then your funds will grow but will buy fewer goods and services in the future.

That said, a Cash ISA is a good idea if there is a chance that you might need the invested funds in the near term or to pay for unforeseen expenses.

If you have more time to work with, a Stocks and Share ISA offers the potential of higher returns. The stock markets have historically outperformed cash, bonds, and inflation. However, as the recent crash has painfully demonstrated, the stock markets can be volatile. You can lose money in a Stocks and Shares ISA, which is the price of higher potential returns.

However, you can increase your odds of Stocks and Shares success. Investing in a diverse portfolio of stocks will help. Investing regularly for the long term and having the flexibility to delay cashing out if a crash occurs will also help.

Options for all

Everyone’s situation and risk tolerance is different. If stock market investing is suitable, the recent market crash offers an opportunity. Good long-term investments are trading at bargain prices. 

There’s a good chance to build wealth with a Stocks and Shares ISA by investing in the likes of index-beating Lindsell Train UK Equity Fund. If you are not interested in actively managed funds, there is a range of funds that track indexes like the FTSE All-Share. Alternatively, you can assemble a portfolio of quality, dividend-paying stocks or growth stocks, depending on your investment preferences.

Keep in mind that there are also Junior ISAs, Help to Buy ISAs, Lifetime ISAs, and Innovative Finance ISAs. These have have their own benefits but more restrictions on who and what they can be used for.

Beat the ISA deadline

It would be foolish not to make the most of your ISA allowance if you have available funds to invest now. There is still time to open an ISA for this tax year. Any contributions made now will affect only this year’s ISA allowance. A new ISA can be opened from 6 April onwards and will get a new £20,000 contribution limit.

Opening an ISA is straightforward, and can be done online with multiple brokers possibly up to midnight on Sunday. This year’s ISA deadline is fast approaching, so what are you waiting for?

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James J. McCombie has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.