Is a Stocks and Shares ISA Safe?
Are you interested in opening a Stocks and Shares ISA, but worried how safe your money would be? Investments can never be a 100% safe bet, but with Stocks and Shares ISAs you are given some protections for your cash.
There are different kinds of ISA in which you can put your savings in a tax-free wrapper. Stocks and Shares ISAs are accounts where your money is invested.
They’re a good way for new investors to get started in the stock market – while making sure they are using their tax-free ISA allowance for a tax year.
With stocks and shares ISA you can either own a “share” in a company, or you can own multiple shares (known as stocks) in different companies.
If you put your money in a Stocks and Shares ISA, then your money will be invested. If that investment goes well, you’ll enjoy tax-free interest returns on your investment.
Risk and Return
- The short answer to the topic of this blog is that no Stocks and Shares ISA is 100% guarantee of returns - the stock market can go down as well as up.
- You need to be aware when opening a Stocks and Shares ISA that you could lose money on your investment rather than gaining it. This is the risk which comes with investment.
- The rule of thumb is that you should invest for at least five years, as this will allow for the normal fluctuations of the stock market - but you need to be ready to move your investment if your ISA regularly performs badly.
Am I protected if something goes wrong?
- If things go very pear-shaped, your money is protected up to a certain extent.
- Most ISAs are regulated by the Financial Conduct Authority (FCA). As an independent regulatory body, they are the regulate conduct for most of the UK’s financial firms and services.
- So, if the fund manager of your ISA goes bust and is unable to repay your money, they should be covered by the Financial Services Compensation Scheme (FSCS). This is the UK’s statutory compensation scheme. In this case, you can be compensated up to a certain amount. You could claim up to £85,000 per person per financial institution.
- This will protect most people, but if you have considerable funds in a Stocks and Shares ISA this might not cover you. The FSCS covers up to £85,000, so if you have invested more than this in one place you may want to re-think your spread of investment funds.
- The one thing you are not protected from is a badly performing investment.
If you’re incredibly risk-averse and care far more about your money being locked away safely in an account than risking it in an investment – then a Stocks and Shares ISA might not be for you. Instead you might want to look at a Cash ISA.
Read moreon the best Investment ISAs, to find the best rate for you.