Some investors find themselves rushing to make the most of their ISA allowance shortly before the 5 April deadline, but evidence shows that investing at the start of the new allowance year leads to higher returns.
If an investor put £1,000 into the MSCI AC World index at the start of every tax year since ISAs launched, they would be £4,389 better off than someone who left it until the last day, according to investing platform Bestinvest.
Likewise, if someone put the full allowance into the IA Global sector at the start of each tax year since ISAs were introduced, they would have made £667,184, almost £38,000 more than if they had waited until the end, figures from interactive investor show.
While there is a risk that markets could decline over the year, data shows that annual returns across all sectors are often in positive territory.
Historically, the MSCI AC World index is 74% more likely to go up over a tax year than down, with positive returns in 17 of the past 23 years.
Still, many investors frequently wait until the last minute before investing, with Bestinvest reporting that 45% of platform users added to their ISAs in the last two months of the tax year.
Jason Hollands, managing director of Bestinvest, said: "Not only does investing earlier in the tax year remove some of the pressure to make a hasty decision up against a perceived deadline, it also means your hard-earned cash is put to work for longer."
Investment platforms have seen a decrease in the overall amount invested with ISAs in recent years as economic uncertainty lowers sentiment.
Hargreaves Lansdown found that 31% of Stocks and Shares ISA holders kept their savings in cash compared to 25% in 2020 and 2021.
This reluctance to invest may be set to continue as high inflation and the lowest household disposable income on record put strains on consumer spending.
However, Hollands suggested that a good way to fix this is to draw out investments, adding small amounts at regular intervals.
He said: “Investing regularly takes the emotion out of investing - it is all too easy to have your investment decisions clouded by current sentiment or events that shouldn’t really matter if you are investing for the long term."
For those than can afford to, using up all of the ISA allowance at the start of the year is an increasingly popular option – ii found that 31% of investors with over £1m in their ISA maxed out their allowance by the end of April last year, compared to 22% in 2020.
Myron Jobson, senior personal finance analyst at ii, said: “The accidental savers phenomenon, by which millions of people saved significant sums of money during lockdowns, owing to less commuting and fewer opportunities for leisure spending, is likely to have fuelled the surge in early bird investing among our customers in the 2021-22 tax year."