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10th
Aug 2020
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Investment ISA Pros and Cons

Investment ISA Pros and Cons

The tax-free returns offered by an Investment ISA (otherwise known as a Stocks and Shares ISA) can be very tempting at first glance - however, as with any investment, it is important to weigh up the pros and cons. So we've put together a list of what you need to consider before opening your own Stocks and Shares ISA account. 

What’s an Investment ISA?

An Investment ISA - also known as a Stocks and Shares ISA - is a tax-free wrapper for your savings which enable you to earn returns on your investments which are safe from the tax man.

The tax allowance for the tax year 2020/2021 is £20,000 – and it’s never too early to be squirrelling your money away to maximise your tax-free returns.

In order to open an Investment ISA, you must be:

18 or over

a citizen of the UK

So, What are the Pros and Cons?

Talking about the “pros and cons” of an Investment ISA is difficult to narrow down; to a certain extent the pros and cons of opening an Investment ISA will differ on the individual and their circumstances.

However, there are some pros and cons which will apply to most people, which we’ve put together in this blog. 

The Pros:

Tax benefits

  • All types of ISA enjoy tax-free status, meaning that any of the returns that you gain from your investments are kept in a tax-free wrapper. 
  • The government sets a yearly amount which you can put into an ISA account.
  • Within an ISA account, any returns made on these investments will be tax free, so with the right investment you can stand to make quite a bit in returns.
  • With an Investment ISA you can expect: 
  • No capital gains tax on profits which result from an increase in share prices.
  • No tax on bond interest
  • No tax on dividends. 

Plenty of Variety 

Flexibility 

  • Lots of platforms will have flexible options regarding the management of your Investment ISA. 
  • You can either take a DIY approach and manage your investments and funds yourself, or you can pay for a fund manager to use their expertise to manage your investments for you.
  • Depending on your experience and preference, you can choose the management style that suits you best. 

Higher returns 

  • It's well known that the current interest rate is at an all-time low; in fact, interest rates for Cash ISAs and Savings Accounts have been very poor for the past few years. Many people prefer an Investment ISA instead, as these tend to have higher interest rates, meaning higher returns for your money. 

The Cons:

Higher Risk 

  • The stock market can easily go down instead of up; with an Investment ISA, you run the risk of getting less money back than you originally put into the ISA.
  • This is no different to any other investment, so if you're a regular investor then this should not intimidate you - but if you have a low risk tolerance then you may prefer another form of ISA.  

Longer Commitment 

  • Generally speaking, most people with an investment ISA would aim to keep that investment for at least 5 years, in order to account for fluctuations in the stock market. 
  • If you feel that you might need your money in a time frame which is less than five years, then you may be better off choosing a Fixed Term Cash ISA, of which there are lots of different term lengths.  

Access 

  • With most investment ISAs, your money will be locked away for a set period of time. 
  • If you choose to withdraw your money in that period, then it will loose it's tax free status, as well as potentially incurring a penalty from your provider.
  • So, if you believe you might need access to this money sooner rather than later, then an Investment ISA account may not be for you. 

Read more about Investment ISAs.

Investment Fund Supermarket ISAs

Stocks & Shares ISA

from Fidelity

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Choose from over 4,000 investment options, including one of the widest fund ranges in the UK, plus shares, investment trusts and exchange-traded funds. There’s also expert guidance to help with your investment decisions, which includes a selection of tools and insights from Fidelity’s experts. Capital at risk. Tax and ISA rules apply.
  • Invest From: £25 through regular savings or £1,000 lump sum

Why we like it: Fidelity has lots of investment options, plus an extensive range of guidance tools to help you decide what to invest in. Their award-winning ISA is easy to start and offers great value, their a typical service fee of just 0.35%. Other ongoing charges apply. On top of that, everything is backed by Fidelity’s 50 years of investment experience.

Important: The value of investments can go down as well as up so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

Tax treatment depends on individual circumstances and all tax rules may change in the future.

Stocks & Shares ISA

from Hargreaves Lansdown

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Choose from over 2,500 funds, shares, investment trusts and more to build your portfolio. UK and overseas shares. Corporate and government bonds. Exchange Traded Funds (ETFs). Ready-made portfolios to suit your goals and attitude to risk from £1,000. Expert research to help make your decisions. Investment trusts and much more. Capital at risk.Tax & ISA rules apply
  • Invest From: £25 pm or from £100 lump sum

Why we like it: Choose your own funds or alternatively a ready made portfolio. Market-beating savings and discounts of up to 5.5%. No charge to buy and sell funds. Low, tiered annual charges for holding funds, with a maximum of just 0.45% per annum. Free fund updates and analysis from experienced research team. Invest with a financially secure, FTSE 100 company.

Important: The value of your investments can rise as well as fall. You may get back less than you invested. If you’re unsure, we recommend you ask for independent advice.

Stocks & Shares ISA

from Interactive Investor

ISA Option
Allows ISA Transfers
Regular Savings
  • Protection Scheme: FSCS
  • Fund Choice: Access 40,000+ UK, US and international shares on 17 global exchanges. Choose from over 3,000 funds or select a ready made portfolio. Investment trusts, ETFs, Bonds & Gilts. Option to invest in 6 low cost funds selected by experts to get you started. Capital at risk. Tax & ISA rules apply
  • Invest From: £25 a month or any lump sum

Why we like it: An award-winning ISA that gives you complete control. The second largest platform in the UK with the widest choice of investment options in the market including funds, investment trusts, ETF’s and more. Strong ethical investment proposition with more than 140 investment options. Open online in less than 10 minutes. Access to expert independent ideas and analysis. Low cost fees and trading.

Important: The value of your investments can rise as well as fall. You may get back less than you invested. If you’re unsure, we recommend you ask for independent advice.

Important Risk Information:

The value of investments can go down in value as well as up, so you could get back less than you invest. It is therefore important that you understand the risks and commitments. This website aims to provide information to help you make your own informed decisions. It does not provide personal advice based on your circumstances. If you are unsure of how suitable an investment is for you, please seek personal advice.

High Income ISAs

High income ISA ideas:

ISAs Products

Cash ISAs

Fixed Rate & Instant Access ISAs:

Cash ISAs: 

Stocks & Shares ISAs

Types of Stocks and Shares ISA include: 

Stocks and Shares ISAs

Latest News

5 Considerations for Your Next Investment ISA

15th March 2021

You've decided to invest your savings into a Stocks and Shares ISA. You'll be using your tax-free ISA allowance for this year before the deadline, while also investing your money for your future. But what do you need to consider before opening an account? We've put together a list of our top five considerations for you to think about before you click "apply". 

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