What Exactly Is a Stocks and Shares ISA
In the UK we have access to great savings tools. This is the Stocks and Shares ISA or Investment ISA. The Stocks and Shares ISA (Individual Savings Account) is essentially a special type of savings accounts that allows you to invest in shares, stocks or funds through the stock market.
In this post I will explain what exactly are Stocks and Shares ISAs and how they work. I will also cover options for Stocks and Shares ISAs that are available today.
This post as well as all of our other posts are not to be taken as financial advice. For and advice with finances or investment decisions then speak to a professional financial advisor.
Investing Through a Stocks and Shares ISA
The Stocks and Shares ISAs and Investment ISAs are very similar to normal savings accounts in that they allow you to save money for future investment purposes. However unlike regular savings accounts they allow you to allocate your funds into different stocks, investment trusts and exchange-traded funds.
Stocks and Shares ISA are a great way to grow your money over time with some added perks over a normal stocks and shares brokerage account. The Stocks and Shares ISA, similarly to other ISAs has been created to allow people to save money for their retirement or later in life.
One of the main reasons to go with a stocks and shares ISA is the tax benefits it can offer. As mentioned before, there are a number of tax advantages when investing through an ISA. These include:
The Rules of a Stocks and Shares ISA
As with all UK ISAs there is a limit to the amount you can deposit onto the ISA each year. This limit is currently £20,000 across all ISAs. For example, if you own two types of ISAs, let’s say a cash ISA and a Stocks and shares ISA and put £10,000 into one of them then you will only be able to put £10,000 into the other as to not surpass the £20,000 max value within the same tax year.
The Pros of a Stocks and Shares ISA
There are many pros to using a Stocks and Shares Isa. One of the most important ones is the tax benefits. When you invest through an ISA you get to take advantage of certain tax rules.
- Paying no capital gains tax. This is the main reason most will opt for a stocks and shares ISA. The tax advantage you get by using a stocks and shares ISA for your investments is not to be ignored. This tax-efficient way of investing can save a lot of money over the long term
- Tax free dividends. Dividends are usually paid out from companies on a quarterly basis. If you pay taxes on these dividends then you could lose out on up to 40% of the dividend income. With a stocks and shares ISAs you don’t.
The Cons of a Stocks and Shares ISA
In addition to the pros listed, there are some cons to using these investment ISAs as your investment accounts. Some of the biggest ones include:
- Higher fees. Although the Stocks and Shares Isa’s are cheaper than other stock brokers due to their tax benefits, there are usually monthly or annual fees related to owning a stocks and shares ISA which can add up.
- Investments can fall. As your money will be sitting within financial assets, you may also lose money in addition to earning money. Don’t just expect to always be in profit with a stocks and shares ISA. Especially not in the short term.
Stocks and Shares ISA Provider List
As with any other type of savings account, there are a whole sea of options. Of course, when it comes to your money, you want to make sure you are making the best decision. So here are my personal favourite choices when it comes to picking a Stocks and Shares ISA
Freetrade is a well-known name in the world of online trading. They are known for offering low spreads and commission rates. Their platform also offers a variety of different features such as margin lending, stop loss orders, and more.
The Freetrade Stocks and Shares ISA allows you to invest in a wide range of individual stocks and shares to funds, bonds and ETFs. Freetrade’s ISA cost is set at £3 per month.
Barclays is another popular choice for a Stocks and Shares Savings Account. It has been around since 1896 and was originally founded as a bank. Today they offer a number of services including banking, wealth management, insurance and retail banking.
Barclays also allow you to invest in a wide range of individual shares to investment funds, bonds and ETFs. The Barclays investment ISA costs a minimum of £4 per month.
Fidelity is one of the largest providers of financial products in the UK. They offer a range of products that cater for both individuals and businesses. You can open a Fidelity Stocks and Shares ISA for as little as 0.2% per year as the service fee however, this service fee will be higher for smaller accounts. Up to 0.35% annually.
Fidelity also offers what are known as ready-made portfolios which are designed to suit investors who desire more of a hands-off approach to there investing.
This is a great all rounder. They offer a broad range of investment products and services. From index investing to active fund management, they do it all. They also offer a free app which makes managing your investments easier.
Vanguard’s ISA allows you to choose from over 70 of Vanguards famous funds to invest in. There charges are also nice and low at only 0.15% per year. To own a Vanguard Stocks and Shares ISA you can either invest £100 per month or a lump sum of £500.
Trading212 is a relatively new provider of Stocks and Shares ISAs. They offer competitive rates and a good range of features. These include access to over 100,000 stocks via an easy to use interface. They also offer a range of tools like stop loss orders, limit orders and more.
The Trading212 stocks and shares ISA has currently closed registration do to high demand. On there website you can sign up to the waiting list.
I hope you enjoyed reading about my top 5 picks for a Stocks and Shares ISA. I would recommend checking out each of these companies if you are looking for a Stocks and Share ISA.
Each company offers something unique so whichever investment platform you decide to go with, you should find what suits you best.
If you have any questions then feel free to leave them below or reach out to me on twitter @portfolio_hub_.
Thanks for Reading
What happens to any income from a stocks & shares ISA?
Any income made on investments in a stocks & shares ISA can either be withdrawn, reinvested back into the investment it has come from, or held as cash in your account. Some investment types, such as certain funds, may only allow you to reinvest your income.
How safe are your savings?
If a fund manager goes bust and owes you money — and the manager is covered by the Financial Services Compensation Scheme — you can claim compensation of up to £85,000 per person, per institution.
What is the 2022/23 ISA allowance?
The 2022/23 ISA allowance is £20,000 and you have until 5 April 2023 to use it. Unfortunately, if you do not use all your ISA allowance in one year, you’re not able to carry this allowance over to the next year. That’s why it’s important to make the most of each year’s tax allowance where possible. Each tax year, the ISA allowance can change. The government decides what the allowance will be for the next tax year based on the annual budget.
How to choose an investment ISA
Comparison websites and financial review sites are a good place to start researching your options. When you’re looking for the right stocks and shares ISA, you’ll need to consider what you want to invest in and how you want to manage your account.