Stocks and Shares ISA Review
Aside from seeking out the best cash ISAs, what else can individuals in the UK do to add just a bit more zing to their savings so that they can earn better returns than they do with traditional savings tools?
The answer is a stocks and shares ISA.
In the rest of this review, AdvisoryHQ will show you how you can harness the power of a stocks and shares ISA to supercharge your savings.
We’ll review the various types of investments that you can hold in your account, how you can select the best stocks and shares ISA for you, and we’ll also highlight some products available through nationally renowned banks, building societies, and other financial institutions.
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What You Should Know About a Stocks & Shares ISA
Investing in a stocks and shares ISA in the UK is a unique way for UK nationals and residents to leverage a savings and investment tool that could potentially produce high returns on their savings.
How does a stocks and shares ISA work?
The concept of a stocks & shares ISA is no different from buying, owning, and selling stocks and shares outside of an ISA. The only differences are:
- You are only allowed to save/invest up to your personal ISA allowance – which for 2015 was £15,000 per person while the ISA allowance for 2015/16 is set at £15,240.
- As long as your investments remain within your stocks & shares ISA, they grow there tax-free, including any dividends or capital appreciation to the value of the shares and stocks held in the account.
The following table provides a snapshot of the differences between a stocks and shares ISA vs. cash ISA.
Stocks and Shares ISA vs. Cash ISA Comparison
STOCKS & SHARES ISA
UK residents having a 5+ year saving/investment time horizon to capture growth from stock markets.
They are usually good for shorter periods – less than 5 years or where you may need easier access to the money.
There is a potential for exceptional returns (higher than a cash ISA), depending on stock market performance.
Your returns are determined by the fixed cash ISA rates advertised or variable rates declared from time-to-time. Usually, these rates revolve around the Bank Of England’s prime rates.
Risks to be aware of …
Even with the best stocks and shares ISA, your initial principal could erode if the stock market plummets, leaving you with less savings than what you initially invested.
While you usually have a guarantee of principal protection, plus fixed or variable rates of interest, your money could still be losing value if the ISA interest rates are less than the rate of inflation.
There could be significant up and down swings in the value of your investments from day to day and even intra-day.
Your savings remain fairly stable and predictable, with interest rates usually compounded daily and paid monthly/annually.
There are no guarantees of returns or of your principal being protected.
With a cash ISA, your money is protected up to £85,000, with each account you hold in every bank or building society.
Amount of investment…
Your ISA allowance for 2015/16 allows you to invest up to a maximum of £15,240, inclusive of amounts invested in a cash ISA.
For the tax year 2015/16, you can invest up to a maximum of £15,240, inclusive of amounts invested in any stocks & shares ISA.
Most institutions offer a wide range of investment choices, including individual stocks and shares, gilts, bonds, exchange-traded funds (ETFs), and investment trust units and funds.
There are no choices offered. The only flexibility is in choosing the best ISA rates applicable on a fixed versus variable investment product.
Access to money…
While you can generally get money by selling the investments held in the account, it may take anywhere between 8 and 10 days before the cash is available for withdrawal from your stocks and shares ISA account.
Most variable rate accounts offer “instant” access through ATMs, online or via phone banking. For fixed-term investments, you may be able to cash your investments earlier; however, you may lose interest or have to pay early withdrawal penalties.
In looking at the table above, it is clear that while a stocks and shares ISA offers the best ISA rates of returns and allows your money to grow faster than if held in a cash ISA, they also pose significantly greater risks (compared to cash ISAs) of losing all or a lot of your savings.
Best Stocks & Shares ISA Accounts
Using AdvisoryHQ’s proprietary selection methodology to compare stocks and shares ISA accounts across a wide range of UK banking institutions, we have identified the following list of best stocks and shares ISA accounts.
Click below for a detailed review and comparison of these stocks and shares ISA accounts.
FAQs on Stocks and Shares ISAs
1. Can I withdraw my money anytime from a stocks and shares ISA?
Yes, you can! You may sell your shares and withdraw the money from your stocks & shares ISA at any time you wish.
However, be aware that some products will penalise you for selling before a stipulated period, and there may even be “load” fees payable when you redeem your units/shares.
2. How much money can I invest in a stocks & shares ISA?
Your ISA allowance for 2015/16 is £15,240 to be saved in an adult ISA. This total amount includes money put away in both a cash ISA as well as in a stocks & shares ISA. A little-known fact, however, is that kids between the age of 16 and 18 years can save a total of £19,320 tax-free each year by opening a cash ISA and a kid’s version of the ISA, called a Junior ISA, in the same year.
3. I don’t have £15,240 to save. Can I use part of it now and the balance next year?
No, you can’t!
By April 5, 2016, you must either use all of your ISA allowance for 2015 (£15,240) – split between a cash ISA and stocks & shares ISA – or the unused balance will be lost forever. The next year, you’ll get a new allowance, but prior years’ unused balances do not carry forward.
Image source: Pixabay
4. Can my stocks & shares ISA also be used to hold cash?
Ideally, you should not be holding cash in a stocks and shares ISA because that defeats the purpose of having an account for investing in the stock market. However, many stocks & shares ISAs allow you to hold cash in them as a means of subsequently deploying the money to buy shares.
Click below for additional (highly important) FAQs before you open a stocks and shares account.
Best Stocks and Shares ISA Comparison and Ranking Table
The ranking table below presents a detailed comparison of this year’s best stocks and shares ISAs.
Information about the best stocks & shares ISAs and other financial data presented on this page are those that have been identified by AdvisoryHQ based on a detailed level of research and due diligence.
AdvisoryHQ’s proprietary stocks & shares ISA account selection methodology focuses on identifying stocks and shares ISA products that offer the best value for money to retail customers and which are open to the broadest range of consumers.
Most of these types of ISA accounts are those offered by online UK banks, building societies, and other savings/investment institutions and are available to any UK resident, usually 16 years of age or older.
While we have endeavoured to review accounts that provide the best ISA rates of returns available, the above lists of stocks & shares ISAs do not cover every ISA product imaginable. Please do not consider these lists as “comprehensive.”
Please consult each bank’s or institution’s website for information on the most updated stocks & shares ISA product offerings.
The value of investments in a stocks & shares ISA can go up, as well as down, so you could get back less money than what you originally invested.
Please consult a qualified investment adviser before making any decisions about which stocks or shares to purchase.
Fees discussed here may not be the only costs associated with a particular stocks and shares ISA. Please consult the institution’s website or your stock broker/investment advisor to learn more about fees, costs, and commissions applicable when you buy/sell stocks, shares, bonds, and other investment vehicles in a stocks & shares ISA.
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.