Are stocks and shares ISAs worth it?
Learn about the pros and cons of a stocks and shares ISA and whether it is right for you.
A stocks and shares ISA is a type of investment where you can hold money in different types of assets. They’re sometimes referred to as a tax ‘wrapper’ as any money in them is sheltered from both Income Tax and Capital Gains Tax.
In this article we’ll discuss whether a stocks and shares ISA might work for you.
ISA allowances
Every new tax year your ISA allowance will reset. As of right now your yearly allowance is £20,000, this is a combined total across any ISAs that you have.
Like we said earlier, your stocks and shares ISA is free from Capital Gains and Income Tax, on any investment growth or dividend income.
Risks vs returns for stocks and shares ISAs
A stock and shares ISA is an investment so there is of course an element of risk to it. But here’s some of the pros and cons of a stocks and shares ISA:
| Pros | Cons |
|---|---|
| Potential for higher returns – By investing there is the possibility you could make more money than what you put into it. | Risk of loss – What goes up may come down, so there is the possibility you could get back less than what you put in. |
| Dipping your toe into investing – As it’s an investment product you can pick from a range of options to suit you. | It’s not easy – Managing a diversified portfolio requires knowledge of the stock market, and if you’re unsure this can be complex and time-consuming. Some providers offer ready made funds, or other options but this is still something to consider. |
| Tailored choices – You’ll be able to pick from a range of risk levels, meaning you can put your money where you’re comfortable. | Market volatility – In the short term, the stock market can be very volatile. This might become stressful if you’re not comfortable. ISAs generally are seen as a long term investment, so you’d need to be ok with seeing dips as well as rises. |
| The tax wrapper – Because a stocks and shares ISA is exempt from Capital Gains and Income Taxes on any investment growth or dividend income, they can be a great savings option. | Fees and charges – When choosing an ISA provider, it’s important to check on management fees, transaction costs and any other charges that may eat into your returns. |
| Regular savings options – Many stocks and shares ISA will allow you to set up a direct debit so you can make regular monthly contributions. Helping you stay disciplined when it comes to savings. | Flexibility - Taking money from some stocks and shares ISA’s can also prevent you from maximising your annual allowance, as any money taken is counted towards it and cannot be re-contributed to it in that same tax year. A flexible ISA lets you withdraw money and then replace it in the same tax year without affecting your annual allowance. |
What other ISA account types are available?
If a stocks and shares ISA isn't what you're looking for, here's another 4 tax free options:
- Cash ISA – This is perfect if you want to save but don't want the ups and downs of investing, and a lot of providers will offer easy access to your money should you need it.
- Innovative finance ISA – This invests your money in peer-to-peer lending.
- Lifetime ISA – If you’re aged between 18-39 and are saving up for your first home, or your retirement you can pay in a maximum of £4,000 each tax year and the government will add a 25% bonus up to £1,000 on any money you invest.
- Junior ISA (JISA) – If you’re a parent or guardian you can open a JISA for your child. You can pay in up to £9,000 per child per tax year and you can have it as either a cash or stocks and shares ISA.
Should I have a stocks and shares ISA?
Yes? No? Maybe?
If you’re not sure whether a stocks and shares ISA is right for you, or you want an ISA but aren’t sure about managing it then we’d recommend speaking to a financial adviser. An adviser will charge for their services.
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