What's an ETF ISA?
The deadline for opening a new ISA is just over a week away as the end of the tax year quickly approaches. If you’re looking to branch out in your investments and considering an ETF ISA (but are unsure where to start) we’ve broken down the essential questions you need answered here.
For traditional savers, the two consecutive Bank of England Base Rate cuts which have been announced in the past two weeks might mean that Cash ISA accounts are suddenly looking far less appealing. You might be looking to diversity your ISA allowance into different types of ISA – and have come across ETF ISAs.
What are ETF ISAs?
ETF stands for “exchange traded funds”, which are funds which issue shares which can then be traded on the stock exchange. These offer a broad range of investment opportunities into a variety of assets, which means that investors can have access to specific markets, sectors and strategies at a comparatively low cost.
They can also provide investors with access to a variety of asset classes – like equities or fixed income.
How do these work?
All ETFs don’t work in exactly the same way – some may…
- Follow market index performance (like FTSE 100/FTSE250)
- Follow smart beta index performance
- Be managed actively by a fund manager
- Be traded actively – like any other stock on the stock exchange
There tends to be a lot of transparency with ETFs – you’ll know where your money is being invested as well as what securities the fund holds, the performance and the costs.
Where can I get one?
There are a variety of platforms where you can invest in an ETF, including…
- Hargreaves Lansdown
- AJ Bell
How much does it cost?
The amount that an ETF will cost will depend on the provider you choose and the account you wish. Because they are traded on the stock market, the price of an ETF will fluctuate depending on the way the market is going. So, the amount it costs on Monday may be different to how much it costs on Friday.
There will be different charges incurred, including the cost of the investment and the charges for management and service fees (charged by the fund manager and investment platform).