What is an Investment ISA?
An Investment ISA is a way for savers to potentially get a higher return than they would from a Cash ISA. It’s a tax-efficient way to invest in shares, gilts, corporate bonds and trusts.
Investment ISAs are exempt from capital gains tax and personal tax meaning they’r the most sensible way to invest as anything you invested outside of the ISA wrapper would be subject to taxation.
You are able to invest your full allowance within an Investment ISA or split your allowance between Investment and Cash ISAs. Some people find that having all their money in one account is significantly easier to manage whereas others prefer to spread their savings out potentially minimising risk and maximising interest.
Cash or Investment ISA?
- Pays a stable rate of interest. Fixed Cash ISAs tend to have the highest rates
- A Fixed Rate ISA would provide you with a guaranteed amount, meaning you will know what your end total will be. However, you are normally required to tie up your money for a period of time
- If you need flexible access to your account then Variable Cash ISAs are a good call as they are more likely to allow you 24/7 access to your money
What to Consider when choosing a Cash ISA provider?
- Whether the ISA is flexible or fixed rate, this will determine the rate of interest you receive
- If you are likely to transfer in the future, fixed rate ISAs tend to charge a penalty whereas variable ISAs tend to be more flexible about transfers
- Look for accounts with the highest rate of interest or switching deals
- Make sure the account you have chosen accepts transfers in, if you’re planning to switch
Some ISAs require large minimum deposits whereas some don’t. Make sure you find one that suits your needs
An Investment ISA is a tax-efficient and flexible way to invest in the market.
- Options to put away a little money each month or investing some spare cash, you could possibly receive a higher return on your savings when compared with a standard ISA
- Many accounts now offering managed collective investment portfolios for you, it is now easy for people to begin investing as no experience is required. This also works for very busy people
- It’s always worth remembering however, that there is an element of risk involved and you could end up with less than you originally invested. Investment ISAs are viewed as a long term investment, usually for a minimum of 5 years.
What to Consider when Choosing a Stocks and Shares Provider?
- Assess the level of risk you’re willing to take, most providers can filter assets depending on the level of risk you’re willing to take or even provide you with a ready-made portfolio
- Low risk investing tends to focus on bond funds which pay interest or dividends regularly, whereas higher risk portfolios tend to focus on property investment and the stock market
- Some providers hold a limited amount of carefully selected options to invest in whereas others have a much larger range of funds. Work out which is right for you
- Some providers have a simple interface with clear copy about each investment and its past performances. Make sure you find one that you find easy to use, helpful and clear
- Be careful of management charges and account fees. All investment ISAs have some form of charge, whether that’s a trading fee or an account management fee. Make sure you know how much your ISA will be costing you before you invest
- Providers often let you hold cash in your account, ready to invest whenever you choose. You can even earn interest on that money so make sure your potential provider offers this if you think you may need this option