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Investing with ISAs

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A stocks and shares ISA is a tax-efficient way of accessing the potential gains in the markets. There are hundreds to choose from – all you have to do is find the right one for you.

Every UK adult has an annual ISA allowance – currently set at £20,000. You can use that to invest in a cash ISA or a stocks and shares ISA, or split your investment between the two.

But what’s the difference? A cash ISA is essentially a tax-efficient savings account. If you take out a stocks and shares ISA, you’ll be investing in the stock market, with all the risks that brings.

However, a stocks and shares ISA may be the right choice for you if:

• You can make a long-term investment: To have a good chance of riding out any ups and downs in the market, you’ll need to invest for at least five years. If you think you’ll need your money before then, a cash option might be better.
• You’re willing to accept some risk: Historically, stocks and shares have done better than savings accounts, but there’s no guarantee they’ll do so in future. You might lose some or all of your money.

If your stocks and shares ISA provider goes bust, the Financial Services Compensation Scheme should cover your investment up to £85,000. But that doesn’t protect you against losses if the fund itself performs poorly.

How to choose an ISA

There are hundreds of stocks and shares ISAs to pick from. Here’s a few pointers on some well-known approaches:

• DIY investment websites: these allow you to pick your own investments, though you’ll need to do some research to make sure you are comfortable with doing this.
• ‘Robo-investment’ platforms: these online services select a portfolio on your behalf, based on the level of risk you choose.
• Independent financial advisers and wealth managers: qualified professionals who can give you detailed advice based on your personal goals.

You may want do your own homework first. Browse the national and financial press to get a feel for what’s available. Then decide whether you need personalised advice before investing. You can read more about the potential costs here.

How to use your ISA

Once you’ve selected your stocks and shares ISA, you can choose to invest with a lump sum, or by making regular monthly payments. If you’re unhappy with how it’s performing, you can always switch to a different ISA later.

As your tax allowances follow the UK’s fiscal year, you have until April 6 to use your annual ISA allowance of £20,000.

The key rule to bear in mind when thinking about an ISA is to consider it as part of your total investment portfolio.

This should include a good mix to spread your risk as widely as possible. For more information, read our article on why investing in stocks and shares is not just for experts.