Investors are overlooking their annual ISA allowance and failing to maximise their returns with stocks and shares ISAs, an investment management firm has said.

A survey of 2,000 people carried out for Fidelity Investment Managers found that 42 per cent of people are not using their full tax free allowance for ISA savings, with just one in 10 choosing to invest in a stocks and shares ISA.

Investment director at Fidelity, Tom Stevenson, said: “Last year we saw unprecedented levels of ISA investments in October, generated by the increased allowance for over 50s. It is disappointing to see that the same interest will probably not be repeated this year, and that people are simply not making the most of their ISA.”

Stevenson described ISAs as a fantastic use-it-or-lose-it tax perk, and encouraged people who wait until the end of the tax year to remember the difference investing early can make.

“Our analysis shows that those who have historically chosen autumn for their investment, rather than leaving it to the last minute, could have gained more than £8,400 extra.”

The additional £8,400 is based on investment growth in the FTSE All Share fund over 15 years.

Figures out on 2 October from the Investment Management Association (IMA) showed that the changes to the ISA allowance for over 50s last year and for the under 50s this year helped push up sales of stocks and shares ISAs.

A survey for the IMA also showed that almost half of investors would save even more if the tax-free allowance was raised.

The allowances for over-50s went up in October 2009 to £10,200 and for under-50s in April 2010. These allowance increases saw ISA sales go up at those times, with the average sales now over £400million a month.

In the period October 2009 to August 2010, ISA sales have almost doubled compared to the same period between 2008 and 2009.

In the IMA poll, 44 per cent of respondents said they would invest more if there was a lifetime tax-free ISA allowance.

Younger investors in the poll said allowing some flexibility on moving money in and out of pension savings would encourage them to save more.

© Fair Investment Company Ltd