F inancial providers are all competing to lure savers and investors into picking their Isa products for this year’s allowance. If you fail to use your full Isa allowance before the end of the financial year, you cannot roll it over. This year, ending on 5 April, you can shelter up to 11,520 from income and capital gains tax, of which half (5,760), can be held in a cash Isa.

However, while the message is use it or lose it, make sure you don’t get caught up in Isa season hype by avoiding 10 classic mistakes.

1 Chasing eye-catching rates

The most generous cash Isa accounts often come with high introductory rates of interest – but these offers only last for a set period, typically a year, before the rate is slashed, often to paltry levels. For example, Halifax’s online Isa offers a headline rate of 1.1 %, but 0.85 percentage points of this comes from a bonus payable for 12 months. Savers who forget to take advantage of their right to switch accounts at this stage risk losing out. For a provider that tends to offer consistently decent rates, Andrew Hagger at MoneyComms picks Nationwide, now offering an instant-access Isa paying 1.5%. If access to your cash is not an issue you could opt for a fixed-rate Isa, which typically offer higher rates.

2 Ignoring the investment

An Isa is not an investment in its own right. It is simply a savings wrapper that can make a savings account or investment plan more tax efficient. To maximise gains, focus on the underlying investments and which are right for you given your aims, attitude to risk and the assets you already hold. An investor looking to build savings for retirement in 20 years’ time, for example, might want to focus on stock market funds that may prove volatile but will hopefully generate higher returns in the long term. By contrast, a saver needing a short-term emergency fund should steer towards cash savings.

3 Ignoring the cost

The cost of investing can have a significant effect on returns over longer periods of time. For example, passive funds, or trackers, come with low annual management charges of 0.2%-0.45%, and their performance typically mimics a particular index, such as the FTSE 100. However, an active fund with a manager whose job is to pick shares to outperform the market will charge around 0.75% a year, or more for specialist funds. The cheapest and simplest way to manage your investment portfolio is through an online investment website where you can buy funds. Find details of the best for you at www.comparefundplatforms.com .

4 Failing to diversify

Isa rules allow investors to hold a wide range of assets, including cash, fixed-income, collective investment funds and individual shares. Too few investors take advantage of this flexibility in order to spread their bets, putting their money into the same asset year after year, says Danny Cox from independent financial adviser Hargreaves Lansdown. Reducing risk is one of the keys to long-term consistent performance, he says. So consider if you are investing across different geographic regions and sectors, with some held in cash for a rainy day, for a truly diversified portfolio. You can spread your investments by choosing funds in different markets, so the UK and globally, and sectors, such as equity income and bonds, and funds managed in different ways.

5 Forgetting existing holdings

Avoiding piling this year’s Isa allowance into particular funds without first checking how you’ve used this in previous years. If you already own investments, these should be your starting point, says Jason Hollands from IFA Bestinvest. Look at where your bets are currently placed and how volatile your portfolio is; even if all the experts are tipping a particular market, it may not make sense for you to invest there if you are already heavily exposed to it. For example, many advisers are tipping UK equity income funds at present, but these are already held by a lot of investors. The UK market soared last year, so your existing exposure may well have become an even bigger percentage of your overall portfolio, says Hollands.

6 Chasing last year’s winners

Investors often jump into strong performing funds or asset classes believing outperformance will continue, warns Patrick Connolly of IFA Chase de Vere. The result is too many people invest at the top of the market after strong performance, and alternatively sell out at the bottom when losses have already been made. Trying to time markets is a fool’s game. Instead, each year’s Isa decision needs to be taken in the context of a long-term strategy designed to realise your financial goals, says Connolly.

7 Being too cautious

If you can’t afford to risk your savings falling in value, stick with cash, but investors who can take a long-term perspective are likely to earn better returns by being more adventurous – and with interest rates low, the tax savings from holding cash in an Isa are minuscule. A cash Isa provides an emergency fund and helps with short-term spending goals, but for longer term savings of five years or more, the stock market is likely to produce a better return, says Cox.

8 Sticking with the losers

Many people don’t realise you can transfer your Isas from previous years, says Claire Walsh from IFA Pavilion Financial Services. If investments you have made in the past – whether in cash or stocks and shares Isas – haven’t turned out as well as you hoped, move them. Some cash Isas, for example, can pay as little as 0.1% interest, but you could shift funds held in these to accounts paying up to 1.75% fixed for a year from Tesco BankAlso, note that while you can move money invested in previous years in cash Isas into a stocks and shares Isa, you can’t transfer old stocks and shares Isas into cash Isas .

9 Misunderstanding the rules

If you inadvertently break the Isa rules, you’ll lose your tax advantages. The biggest mistake we see is people investing more than the allowance each year, warns Martin Bamford from IFA Informed Choice. Also, some investors transfer their Isas by closing their account and then opening a new one, which breaches the rules – instead, follow your new Isa provider’s transfer process carefully. Often, savers open cash Isas without realising this reduces the amount allowed in a stocks and shares Isa.

10 Leaving it to the last minute

Try to make this the last time you leave it until the end of the tax year to use your Isa allowance. Invest at the beginning instead and your money is working for an additional 11 months. For example, if, on the first day of each of the past 11 tax years, you had invested the maximum into Invesco Perpetual High Income, one of the most popular Isa funds, you would have accrued a fund worth 164,237 after charges, says Scott Gallacher from IFA Rowley Turton. Had you left it to the last day, each year, you would have 143,319 – more than 20,000 less. If you don’t have the funds to use your Isa allowance in full at the beginning of the year, regular savings plans enable you to drip-feed cash into savings on a monthly basis – and can be a useful way to ride out stock market volatility.