A stocks and shares ISA (individual savings account), sometimes known as an investment ISA, is a tax-efficient investment account. This means that you don’t have to pay Income Tax or Capital Gains Tax on any profits you make on your investment.
Unlike a cash ISA, you can invest your money in stocks, funds, bonds, and other assets. This gives your savings more potential to grow over the long-term, but it also comes with some risk. The value of your investments can fall as well as rise and you may not get back what you put in.
Stocks and shares ISAs allow you to invest your money over the medium to long-term, with the aim of growing your savings. This is different to a cash ISA as you are not guaranteed an interest rate, but there is more potential for growth if you are comfortable with the risk that you may not get your full investment back.
Each year you have an annual ISA allowance that is set by the Government, which is the limit that you can save into an ISA each tax year. In the 2022/23 tax year the annual ISA allowance is £20,000.
Explore how our Stocks & Shares ISA works in this video:
Where can you choose to invest with a stocks and shares ISA?
You can choose to invest in ISAs with different investment styles, so you should check that you are choosing an ISA that suits your needs. Different ISA providers will give you different options, but the main ways you can invest are to either do your own research and invest in individual shares, or to invest into ready-made investment funds.
Investing in individual stocks and shares
If you choose to do your own research, then some providers allow you to buy and sell specific shares of your choice. When you do this, you’re essentially the owner of a portion of an individual company. However, you should be aware that there is an increased risk to choosing to invest in an individual or small number of companies, which is due to your investment’s performance being more reliant on a smaller number of companies performing well.
Investing in ready-made funds
Investing in ready-made funds is an easier way to invest your money in a wider range of companies, which are often chosen by investment managers. When you do this, your money is more likely to be spread across a range of companies in different sectors, as well as other types of investments such as property and bonds. This can help you to spread your risk but will not eliminate it completely. Depending on the provider, you may be able to choose to invest in specific funds or a ready-made fund portfolio.
At Shepherds Friendly, we believe in the power of simplicity so give members the choice of two ready-made funds. We offer one fund which invests in a broad range of companies, and another that specifically invests in companies that are leading the way in sustainability.
You can learn about how we invest our members’ money in our video on with-profits investing.
How to invest in a stocks and shares ISA
Investing in a stocks and shares ISA can be quick and simple and it should take you about 10 minutes to complete an application. Before you open a stocks and shares ISA it’s important to ensure you are eligible. To invest in a stocks and shares ISA account you must:
Be aged 18+
Be a UK resident (excluding the Isle of Man and Channel Islands).
Have access to your National Insurance number
Have not already exceeded your annual ISA allowance of £20,000
Have not already subscribed to another stocks and shares ISA this tax year
Can you open more than one stocks and shares ISA?
You can only invest in one stocks and shares ISA each tax year, which runs from 6th April to 5th April. However, you can invest in a new stocks and shares ISA each tax year, if you stop investing in your previous ISA(s).
Additionally, you can invest in different types of ISAs each financial year: The four types of ISA’s you can invest in are:
Stocks and shares ISAs
Innovative finance ISAs
Every tax year you can invest in one of each type of ISA. However, the amount you save across each ISA will count towards your annual £20,000 tax free allowance. For example, you can invest £12,000 in a stocks and shares ISA and £8,000 in a cash ISA without being taxed on any growth.
You can also save for your child’s future separately in a junior ISA. The current junior ISA allowance is £9,000 and the child will receive the lump sum when they turn 18.
Is a stocks and shares ISA worth it?
A stocks and shares ISA could be an ideal way to help fund your future and achieve your medium to long-term savings goals. There are many benefits, such as:
You can shelter your savings from tax – You won’t pay any tax on investment growth and can save up to £20,000 this tax year.
There are different stocks and shares ISAs to suit different needs – You can choose to invest in a stocks and shares ISA that gives you more control over the specific shares you invest in, or one that allows you to invest in ready-made funds which are managed on your behalf. You should research which type is best for your needs.
You have the potential to earn more than a cash ISA – Investing gives you more potential for growth than a cash ISA. However, it should also be seen as a medium to long-term activity to help mitigate risk, as investments can go down as well as up.
Past performance cannot be taken as a guarantee of future returns.
Bonus rates vary from year to year depending on the performance of our investments and in some years we may not pay out any at all.
HM Revenue and Customs may change the tax status of an ISA in the future.
Inflation and making regular withdrawals may affect the purchasing value of your investment in the future.
If you have been invested through periods of poor investment performance, and you leave the fund, you may get back less than the current value of your plan. This is known as a Market Value Reduction (MVR)
When you take out an investment product with us your capital is at risk and you may get back less than you have put in. All references to taxation are to UK taxation and are based on Shepherds Friendly Society’s understanding of current legislation and H M Revenue and Customs practice which may change in the future. Investment growth is by means of bonuses, the amount of which cannot be guaranteed throughout the term of the contract. Please ensure that you read the full terms and conditions of this plan which are available from your financial adviser or by contacting us directly.
Please note: No advice has been given by Shepherds Friendly, and if you are in any doubt as to whether a savings plan is suited to your needs, then you should contact a financial adviser. There may be a charge for financial advice, and the cost should be confirmed to you before any advice is given.