What is a Stocks and Shares ISA?

Your guide to the Stocks and Shares ISA. Find out how a Stocks and Shares ISA works and know the rules and limits before you invest.

The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results

Firstly, what is an ISA?

ISA stands for Individual Savings Allowance and was first introduced in 1999 to give people a tax-efficient way of saving for their future. Back then, you could save up to £3000 in a Cash ISA or £7000 in Stocks and Shares ISA.

Fast forward 20 years and the total annual allowance for the tax year - 6 April 2019 to 5 April 2010 - has grown to £20,000, while the number of different types of ISA has also expanded.

Today, alongside the cash ISA and the Stocks and Shares ISA, you can also use your £20,000 allowance in what’s known as an Innovative Finance ISA and a Lifetime ISA.

You can open a Stocks and Shares ISA if you are a UK resident and 18+ years old, and a cash ISA if you’re 16+.

What is a Stocks and Shares ISA?

In a Stock and Shares ISA, you can buy and sell shares in companies, investment trusts, exchange traded funds (ETFs) as well as the more traditional funds such as unit trusts and open-ended investment companies (OEICs).

The key benefit of using a Stocks and Shares ISA is that any profits you make are free from capital gains tax and any dividends you receive are tax-free too. This means that you get to keep more of your returns, which lets your investments grow faster.

Stocks and Shares ISAs are flexible too, meaning that any money you have put in during the tax year is free to be withdrawn and replaced, as long as you do so before the end of that tax year.

Is a Stocks and Shares ISA right for me?

If you are looking to grow your wealth over time, then investing in a Stocks and Shares ISA should be a priority. Yes, investing is riskier than keeping your savings in cash, but over the long term you are generally rewarded with higher returns. For example, over the last 30 years, the MSCI World Index which tracks the performance of stocks from across the globe has risen by 7.7% a year on average.

Since the interest rate on a cash ISA remains below the current UK rate of inflation, cash ISA accounts are yielding what is called a negative real return. What this means is that the purchasing power of your money is falling over time. What’s more, it is unlikely that interest rates will return to levels seen before the financial crisis any time soon, so keeping your savings in cash instead of investing might continue to be counterproductive.

How many Stocks and Shares ISAs am I allowed?

One important rule is that you are only allowed to pay into one Stocks and Shares ISA in the tax year. This means that if you have already funded your Stocks and Shares ISA this tax year, you cannot go and fund another Stocks and Shares ISA at a different provider.

If you want to switch provider, you’ll either need to transfer your existing Stocks and Shares ISA to the new provider, or wait until the new tax year, when you can then use your new annual allowance to fund your brand spanking new account.

You can keep previous allowances with the old provider, but it might be simpler to hold all investments in one place. You can transfer your account at any time, but just be aware that some providers might charge you stock transfer fees or exit fees. We think these types of charges are unfair as it limits your ability to switch provider. We don’t, and will never, charge these types of fees.

What lots of people don’t realise is if you have a cash ISA, you are free to open a Stocks and Shares ISA with whichever provider you want as well. You can fund both accounts throughout the tax year, but your £20,000 allowance covers all types of ISA.

How to find the best stocks and shares ISA?

We think that there are four key considerations to make when choosing which Stocks and Shares ISA is best for you.

1. Confidence and time

Are you comfortable with making your own investment decisions? From creating a simple, balanced portfolio to executing an advanced stock picking strategy, your confidence should determine whether you do-it-yourself or have someone manage your investments on your behalf.

Even people who know lots about financial markets may choose to let an expert manage their portfolio. Keeping on top of what’s happening in the economy and reading up on investment ideas can take up a significant amount of time.

2. Products

If you are confident that in making your own investment decisions, the next consideration is what type of investments you want to buy. The range of products that a stockbroker or fund platform offers should be listed on their website.

Our share dealing platform lists over 10,000 individual shares, as well as many investment trusts and ETFs. We believe that using these, investors can create a low-cost portfolio themselves. But if you would prefer to have your investments managed, we also have a range of ready-made portfolios that now have a 2 year track record.

3. Costs

This is perhaps one of the most important factors in deciding where to open your Stocks and Shares ISA. Regulations now mean that providers must show all their fees to their customers up front. However, comparing between platforms can still be challenging, and some costs are commonly overlooked.

Commissions, FX fees, platform fees, closure fees and transfer out fees should all be considered.

4. Quality of service

Which leads nicely to the level of service you get. Some platforms may be extremely cheap, but it is important to find the happy medium between price and quality. We are a member of the Institute of Customer Service and have a 24-hour helpdesk that you can call if you ever have a question.

How to open your IG Stocks and Shares ISA

We believe that our share dealing platform is a leading choice for investors who want to use a Stocks and Shares ISA to build their own portfolio. Within your ISA you can also invest in a Smart Portfolio.

To open an account, follow this link to complete our quick application form. And when your account is open, you can add a Stocks and Shares ISA in the Dashboard area of your account.

We’re here to help, so if you have any questions, you can get in touch at newaccounts.uk@ig.com

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.