Understanding how stocks and shares ISAs work goes a long way in the finance industry. This is an investment account that you never get to pay tax on and it includes individual stocks and shares, investment funds, investment trusts, unit trusts, government and corporate bonds, and OEICs (Open Ended Investment Companies).
With Stocks and Shares ISAs, you would gain interest in your money in the long run but you must also be prepared for the possibility of losing some of your money.
Stocks and Shares ISAs are a more long-term option, as your money is invested in the cause you have opted for and gradually, as it gains or loses value, your money will be adjusted accordingly. How much you can invest yearly depends on your ISA allowance, which is currently £20,000 in the 2020/21 tax year.
How is this Different From Cash ISA?
Cash ISA is the same as your regular savings account where you get to save up to £20,000 each tax year and the interest payments will be tax-free in return. You also have the option of either having access to your funds or locking it for a specified period with a higher fixed rate. This is different from the Stocks and Shares ISA, also known as Investment ISA, that can be set up with a stockbroker, wealth manager, online fund supermarket, and more.
While choosing your ISA, one important factor to consider is how long you intend to keep your money. This depends on your financial goal, how much you intend to achieve, and how long it will take. Cash ISAs are for the short-term but can also benefit you in other ways, such as easy access to your funds, a low-risk profile where you don’t risk losing your money, and can also serve as emergency funds. Stocks and Shares ISAs are for the long term where your money is subject to market changes and values. Giving it time to grow and adjust to the market can help you rule out any loss and help your money grow, so you can earn interests in the long run.
Can You Have More than One ISA at a Time?
Yes, you can have more than one. Most people use both the Cash ISA and the Stocks and Shares ISA. You can pay into both in the same tax year but they collectively should not exceed the total amount of £20,000 in a tax year. By diversifying, you are giving yourself more opportunities to prepare for the future and it also reduces the risk of losing all your funds. The diversification rule is often advised for any investor.
Where Can You Get One?
There are various places to get your stocks and shares ISAs and this includes banks, building societies, friendly societies, crowdfunding companies, peer-to-peer lending services, credit unions, financial services companies, and more. You can open an ISA account anywhere, depending on your preferred platform. You will need your National Insurance Number, bank account details, and a debit card to get started.