Early bird, late bird and regular saver ISAs compared

Laith Khalaf
31 March 2021

•    Since 1999, early bird ISA investing has been a winning strategy in 14 out of 22 years, by on average £224
•    As an ongoing annual strategy, early birds have beaten late birds in 21 out of 22 years
•    Regular savers tend to come somewhere in between early birds and late birds
•    Last spring’s sharp market fall favoured last minute ISA investors
•    Historical data suggests the sooner you get your money in the market, the better

Laith Khalaf, financial analyst at AJ Bell, comments:

“Right now, many investors will be rushing to get their ISA contribution for the current tax year in before the 5th April deadline. But there is a breed of investor who always gets their ISA contributions in at the earliest opportunity, and they will be calmly waiting for the 6th April to roll around, so they can take out their 2021/22 ISA as soon as possible. Historical performance shows these ‘early bird’ ISA investors actually end up with more money than the ‘late birds’ who wait until the end of the tax year to use their allowance.

“Analysing performance stretching back to April 1999, when ISAs were introduced, early bird ISA investors have beaten late birds in 14 out 22 years, by on average £224 on a £3,000 contribution. Late birds rule the roost in years when markets are falling, so they had a good spell between 2000 and 2003, and again from 2007 to 2009, in the midst of the global financial crisis. But markets tend to rise more than they fall, so early birds will generally be quids in by investing at the beginning rather than at the end of the tax year.

“What is most remarkable though, is how this market dynamic affects the relative merits of being an early bird or a late bird as an ongoing strategy - year in, year out. As an annual strategy, early bird ISA investing comes up trumps, no matter which tax year you started investing in, with the exception of 2019/2020, when last year’s sharp market fall provided late bird ISA investors with an opportunity to buy cheap shares. But if historical market performance is anything to go by, we can expect an early bird strategy staring in 2019/20 to gradually catch up and overtake the late bird strategy. That’s simply because almost all of the time, early bird ISA investors have more money in the market than late birds, and while there may be setbacks, in the long run that’s a winning strategy. 

“Investors may be tempted to game the system by picking and choosing when to be early birds and when to be late birds, depending on the market outlook. But all professional investors will tell you that market performance over the course of the year is a coin toss, so catching the worm will be a matter of blind luck. Whether you’re an early bird or a last minute investor, you can still end up with a sizeable nest egg if you use your ISA allowance each year, but going early definitely gives you a considerable edge. The performance numbers tell us that if you contribute to an ISA each year, the sooner you can get your money in the market, the better.”

Lump sum v regular saving investing

“If you don’t have the money to hand, then a halfway house is a regular savings plan, which drip feeds money into the market throughout the year. This approach tends to produce results somewhere in between the early bird and late bird strategies in the long run. Again, this simply comes down to how long your money is invested in the market compared to the other approaches. 

“Regular saving strategies starting in six of the last seven years have fallen behind both early bird and late bird approaches though. This is largely down to that big fall in the market we saw last spring, as the pandemic really hit home in major stock indices, which provided late bird investors with an opportunity to buy into the market at a low price. That big one-off drop plays a much bigger part in ISA investing strategies that started recently, than it does in those that started earlier on, simply because there are more years of saving included in the latter, which offset the effect of the coronavirus crash. If we reviewed these approaches in twenty years’ time, we would expect the results of regular savings ISA plans started in recent years to fall in line with the long term trend, as the tendency for markets to rise works its magic.

“Regular monthly investments also make for a smoother journey than lump sum investing and take the faff out of saving, because they’re deducted directly from your bank account. You can even set up a regular saving ISA for 2021/22 at the same time as making your contribution for this tax year. It’s a simple, low maintenance, and disciplined way of investing, and totally relieves investors of the last-minute ISA rush.”

Early bird, late bird and regular saver ISAs compared

One off contributions

The table below shows the current value of an early bird and late bird ISA investing approach in each individual tax year since ISAs were introduced. In each case £3,000 is invested in an ISA, but the early bird strategy invests on the first day of the tax year, whereas the late bird strategy invests on the last day of the tax year. So for example, in the 1999/2000 tax year, the early bird ISA investor puts £3,000 in the market (the FTSE All Share) on 6th April 1999, and the late bird ISA strategy invests on 5th April 2000. In the current tax year, the late bird ISA contribution is assumed to take place on 24th March 2021, the last day of our analysis, and a proxy for the end of this tax year.

The late bird approach works best in years when markets have fallen, for instance 2002/03, when a late bird contribution of £3,000 would now be worth £3,043 more than an early bird contribution, so a differential bigger than the original investment. Over the course of the 2002/03, the FTSE All Share fell by 26%. By contrast in the tax year 2009/10, the FTSE All Share bounced back from the financial crisis, rising by 51%, and so an early bird strategy in that tax year would now be worth £2,892 more than a late bird ISA investment of £3,000. Again, this is almost as much as the original investment, reflecting extreme market performance in that year.

Overall the early bird approach works better 64% of the time, in 14 out of 22 tax years, to the tune of £224 on average.

Tax year

Early bird

Late bird

Early bird v late bird

1999/2000

£8,178

£7,767

£411

2000/2001

£7,661

£8,491

-£830

2001/2002

£8,516

£8,792

-£277

2002/2003

£8,792

£11,835

-£3,043

2003/2004

£11,834

£9,328

£2,506

2004/2005

£9,345

£8,158

£1,186

2005/2006

£8,139

£6,346

£1,793

2006/2007

£6,342

£5,697

£645

2007/2008

£5,697

£6,036

-£339

2008/2009

£6,036

£8,580

-£2,544

2009/2010

£8,650

£5,758

£2,892

2010/2011

£5,718

£5,274

£444

2011/2012

£5,244

£5,329

-£85

2012/2013

£5,328

£4,644

£684

2013/2014

£4,644

£4,100

£544

2014/2015

£4,100

£3,867

£233

2015/2016

£3,867

£4,116

-£250

2016/2017

£4,071

£3,326

£746

2017/2018

£3,329

£3,231

£99

2018/2019

£3,237

£3,021

£215

2019/2020

£3,021

£3,993

-£972

2020/2021

£3,862

£3,000

£862

Average

£6,164

£5,941

£224

Source: FE, total return to 24th March 2021

Ongoing contributions

The following table shows early bird and late bird ISA investing as ongoing strategies. So instead of investing just £3,000 in one year, the strategies invest £3,000 at the same time every year. We have modelled strategies starting in each year since ISAs were launched in 1999. So, for example, the early bird ISA strategy starting in 1999/2000 invests £3,000 on 6th April 1999, £3,000 on 6th April 2000, and so on, right up to 6th April 2020. The late bird strategy starting in the same tax year invests £3,000 on 5th April 2000, then £3,000 on 5th April 2001 and so on through to £3,000 on 24th March 2021, the last day of our analysis, and a proxy for the end of this tax year.

As an annual strategy starting in 1999, an early bird investor would today have £135,611 in their ISA, compared to £130,692 in the ISA of a late bird investor. Overall both investors would have contributed £66,000 to ISAs, reflecting 22 years of £3,000 annual contributions.

For comparison we have also included in the analysis a regular monthly savings plan, also investing £3,000 a year, but as twelve £250 monthly contributions. Over the long term, this approach lands somewhere in between early bird and late bird strategies, offering a bit more than the late bird, and a bit less than the early bird. This makes sense if you consider regular savings exposure to rising markets over the long term is somewhere in between the two lump sum approaches.

However, a regular savings plan started in six of the last seven years has bucked this trend, providing less than a late bird strategy (highlighted in the table). That’s in large part due to the effect of the big fall in markets last spring, which provided late bird investors with an opportunity to buy into the market at a low price. This has less of an effect on a savings plan starting in say, 1999, than it does in 2019, simply because the former has many more ‘normal’ years to offset the timing of the sharp market fall last year. In the fullness of time therefore, we should expect regular savings plans starting in tax years 2014/15 through to 2019/2020 to fall in line with the long-term trend, settling somewhere in between an early bird and a late bird strategy.

Tax year

Total contributions

Early bird

Late bird

Early bird v late bird

Regular savings

1999/2000

£66,000

£135,611

£130,692

£4,919

£133,346

2000/2001

£63,000

£127,433

£122,925

£4,509

£125,391

2001/2002

£60,000

£119,772

£114,433

£5,339

£117,747

2002/2003

£57,000

£111,256

£105,641

£5,615

£109,015

2003/2004

£54,000

£102,465

£93,806

£8,658

£98,151

2004/2005

£51,000

£90,630

£84,478

£6,153

£87,921

2005/2006

£48,000

£81,286

£76,319

£4,966

£78,996

2006/2007

£45,000

£73,147

£69,973

£3,174

£71,595

2007/2008

£42,000

£66,805

£64,276

£2,529

£65,341

2008/2009

£39,000

£61,108

£58,240

£2,868

£59,603

2009/2010

£36,000

£55,072

£49,659

£5,413

£52,309

2010/2011

£33,000

£46,422

£43,901

£2,521

£45,295

2011/2012

£30,000

£40,703

£38,627

£2,076

£39,499

2012/2013

£27,000

£35,460

£33,299

£2,161

£33,953

2013/2014

£24,000

£30,132

£28,654

£1,477

£28,849

2014/2015

£21,000

£25,487

£24,554

£933

£24,525

2015/2016

£18,000

£21,387

£20,687

£700

£20,473

2016/2017

£15,000

£17,521

£16,571

£950

£16,449

2017/2018

£12,000

£13,449

£13,245

£204

£12,750

2018/2019

£9,000

£10,120

£10,015

£105

£9,531

2019/2020

£6,000

£6,883

£6,993

-£110

£6,380

2020/2021

£3,000

£3,862

£3,000

£862

£3,369

Source: FE, total return to 24th March 2021

Laith Khalaf
Financial Analyst

Laith Khalaf started his career in 2001, after studying philosophy at Cambridge University. He’s worked in a variety of roles across pensions and investments, covering both the DIY and the advised sides of the business. In 2007, he began to focus on research and analysis, and has since become a leading industry commentator, as well as a regular contributor to the financial pages of the national press. He’s a frequent guest on TV and radio, and for several years provided daily business bulletins on LBC.

Contact details

Mobile: 07936 963 267
Email: laith.khalaf@ajbell.co.uk

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