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Compare Investment ISAs

An investment ISA (also known as a stocks and shares ISA) allows you to buy, hold and sell investments.

With an investment ISA, all capital gains and income made from your investments won’t be taxed, as long as you remain within your tax year allowance.

Investment ISAs put your capital at risk, and you may get back less than you originally invested.

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What is an investment ISA?

An investment ISA (also known as a stocks and shares ISA), is a wrapper in which you can hold assets like stocks, bonds and shares without having to pay tax on any gains you make.

ISAs, also known as Individual Savings Accounts, are a tax-efficient way to buy, hold or sell investments like shares, bonds and funds.

Each adult in the UK is allowed to open an ISA. You can either hold your money in a Cash ISA or an Investment ISA. If you want to buy stockmarket funds you will need to choose an Investment ISA.

A Stocks & Shares ISA, or Investment ISA, enables you to buy stockmarket investments like equities, shares, bonds and funds.

It's different from a Cash ISA, which is a straightforward cash savings account with tax protection.

How do Investment ISAs work?

An investment ISA allows you to buy, hold and sell investments. With an investment ISA, your money can grow free of tax.

Currently, if your investments grow outside of an ISA, or you receive pay outs from the funds or shares that you own, you may have to pay tax on the proceeds.

The government launched ISAs as a tax-free way to save for the long term, and each year you have an ISA allowance, which is the maximum you can invest tax-free into your ISA wrapper.

How much can I invest in an Investment ISA?

You can put up to £20,000 a year into an ISA without paying tax on any interest you earn.

If you put your full allowance of money into an ISA every year, you could eventually earn a lot of tax-free income every year.

The tax year runs from April 6 each year to the following April. The ISA allowance for the 2021-22 financial year (known as the tax year) is £20,000, which is unchanged from the 2020 to 2021 tax year.

Remember...

If you don't use up the whole of your annual £20,000 ISA allowance in one tax year you cannot carry it forward to the next tax year. However, once the new tax year starts you have another £20,000 of money you can invest.

How much am I allowed to save into an ISA?

ISAs, also known as Individual Savings Accounts, are a tax-efficient place for your savings. At the start of each tax year (from April 6 onwards) you are allowed to save or invest a total of £20,000 per year. 

There are two different types of ISA – a Cash ISA and an Investment ISA. A Stocks & Shares ISA, or Investment ISA, enables you to buy stockmarket investments like equities, shares, bonds and funds. It is different from a Cash ISA, which is a straightforward cash savings account with tax protection.

Find the best Cash ISA rates

Remember...

Everyone who is aged over 18 and resident in the UK can invest in an Individual Savings Account. 

What's the advantage of an Investment ISA?

An Investment ISA can help shield your money from tax and help you to grow a nest egg over the long term.

Each year you can add to your ISA account to build up your savings - you need to use your allowance within the tax year or you will lose it for that year. Although you can withdraw money, it is best to view your ISA as a long term savings vehicle.

Growing your ISA

How does my money grow in an Investment ISA?

With an Investment ISA, the value of your funds can rise and fall as the stockmarket changes.

For long term savings, an Investment ISA can potentially offer greater growth and income than a straightforward savings account. Investments can also maintain the buying power of your money against the eroding effects of inflation.

However, shares and funds can fall in value as well as rise and if you sell your investments when the market has fallen then you will lose money.

For this reason it is better if you take a medium to long term view on any investments you hold in an Investment ISA. By holding for the long term you can ride out any dips in the stockmarket and hopefully see growth over time.

How does my money grow in a Cash ISA?

With a Cash ISA, you earn monthly or annual interest. The interest you earn is added to the ISA account, free of tax.

With an Investment ISA your money buys shares or funds in the stockmarket. If the stockmarket rises, the underlying value of your investments increases. In addition, the funds or companies you hold may pay shareholders a cash payout called a dividend.

Depending on your tax position, you might have to pay tax on dividends which you receive outside an ISA. If you receive dividends within the Investment ISA tax wrapper then there is no tax to pay. As long as you keep your money invested in the ISA, you will not have to pay any tax on growth or income.

With a Cash ISA, the value of your savings is secure and cannot go down in value.

Who should choose an Investment ISA?

If you want to save for the future and you are looking for a better return than a cash savings account, you could consider an Investment ISA.

For example, the current average interest on Cash ISAs is between 1 and 2%. In previous years, some investment ISAs have gained more than 10% in a year.

There are predictions that inflation will start to rise because the cost of living and the cost of goods and services is going up. If this is the case then cash in the bank will start to lose its real value and its purchasing power.

Stocks and Shares FAQs

Making a longterm investment

An Investment ISA is not a good home for savings that you might need in a hurry, or for a savings goal that is only a few years away.

You don't want to risk your savings and capital or find your investment has gone down in value if you are saving up for a house deposit.

However, if you have spare money to invest and you want to focus on long term growth, then an Investment ISA could be a good option for you. Make sure you can cover all your household bills, that you have cleared your debts and that you are investing money that you can afford to lose.