By Daniel Hough

Many people are facing pressures on their finances that have not been seen for decades.

Inflation is at a 30-year high, the cost of energy continues to surge, and rising interest rates are beginning to filter through to mortgage and debt repayments.

At the beginning of a financial year, we normally talk about the importance of using your annual tax-free allowances as part of a long-term plan.

While it may not be possible for everyone to save when the cost of living is increasing, using these can help you maximise your immediate and future financial health – particularly when it comes to Individual Savings Accounts (ISAs).

Saving into an ISA can be for anyone: you can open a cash account from the age of 16 and a stocks and shares ISA from 18.

Everyone has an annual allowance of up to £20,000, allowing you to earn tax-free interest on your savings either in the form of a cash or stocks and shares account.

It may seem counter-intuitive, with stock markets highly volatile since the turn of the year and likely to remain so for some time yet, but for those able to do so it may be a good time to contribute as much of your ISA subscription to stocks and shares as you can afford to.

While it is easy to be drawn into the negative market sentiment of the day, bear in mind that stock markets have had sharp downturns in response to a number of events over the last 20-odd years – most recently the outbreak of Covid-19. It may have taken some time for stocks to recover, but in each case they have rebounded.

In fact, although past performance is no guide to future returns, research has indicated that using your allowance early can produce better returns and stocks and, historically, shares have tended to outperform cash.

On top of that, investing during falling markets has typically placed investors well for the rallies that followed.

Of course, if you are not in a position to tie up savings in investments or you do not like taking risk, you do not necessarily have to choose a stocks and shares ISA. It is much better to use your ISA allowance by contributing to a cash account, rather than wasting it for the year altogether.

According to Moneyfacts, the best easy access cash ISA offers a return of 1 per cent, which is obviously well below the rate of inflation.

However, with the Bank of England base interest rate recently rising to 1%, we would expect this to push up rates for savers – albeit, still nowhere near the 10% inflation rate predicted by the Bank.

It is also worth remembering, should you change your mind, you can transfer cash ISA holdings into a stocks and shares account at any point during the tax year. You can also take money out of an ISA and put it back in that year if you need the cash – but you need to make sure you have a Flexible ISA to do this, so speak to your financial adviser or ISA provider before making any withdrawals.

If you have stocks and shares held in a general investment account, then moving these to your ISA may be another good way of maximising your annual allowance. This is referred to in financial circles as a “bed and ISA”, which involves selling investments and then buying them again within the ISA wrapper.

For those keen to invest but worried about current volatility, you can always take a more gradual approach.

Many savers prefer to invest over the course of a year, which has the advantages of spreading risk and taking the emotion out of the process– if you have a direct debit automatically contributing to an ISA on the same day every month, you are less likely to be swayed by short-term market movements.

Saving can be a difficult prospect while the cost of everyday life is rising – and it may be particularly daunting when stock markets are falling. However, provided you can afford to do so, that could make it the best time to invest through your annual ISA subscription and make a meaningful contribution to your financial future.

Daniel Hough is a financial planner at wealth manager Brewin Dolphin in Glasgow.