The allowance for the current 2024/25 financial year is £20,000. If you haven’t already, you can still invest £20,000 tax-free until the beginning of April. But what are the stocks and shares, what should you look for and which is for you?
What is the Best Stocks and Shares ISA?
The ISA allowance for the current 2024/25 financial year is £20,000. If you haven’t already, you can still invest £20,000 tax-free until the beginning of April. But what is the best stocks and shares ISA, what should you look for and which is best for you?
The short answer is that there is no right or wrong when choosing which is the best stocks and shares ISA. It all comes down to personal circumstances and what suits you.
When exploring your investment options, here are the points you need to consider:
Why Choose a Stocks and Shares ISA?
After the financial crash of 2008, interest rates have remained too low to make any return on investment from a cash ISA or other savings accounts. Instead, investing the money over a 5 year term in a stocks and shares ISA is much more likely to provide higher returns.
Tracking the financial markets, stocks and shares ISAs allow you to deposit as much or as little as you want (maximum £20k over the year) in a managed fund.
You cannot open more than one per year, but you can transfer ISAs from previous years into a new one.
Having the option to invest £20k per year in a single ISA gives you the advantage of picking and choosing a new one each year, diversifying your investments and spreading your assets with tax-free benefits.
How Much Do You Want to Invest
First, you need to decide how much you want to invest.
If you want to drip feed in a little each month, there are many market-leading, stocks and shares ISA that allow you to deposit as little as £20-£25 per month.
To make your investment worthwhile, you should invest considerably more than this.
The more you can afford to deposit, the higher the risk or the prospect of return and the more you will get for the fees you pay for having the account.
Where are the Funds Invested?
Each stocks and shares ISA provider manages funds differently. While some index tracker fund ISAs follow the performance of the world’s stock markets, such as the FTSE 100, S&P 100 or the FTSE 250, others invest the capital into property funds, income funds and readymade ISA portfolios.
There is no right and wrong as to which you choose but spreading the investment across several options minimises the risk. As the old saying goes; “don’t put all your eggs in one basket”.
The Term of the Investment
When considering a stocks and shares ISA, you want to look at the long term of 5 years or more. Any profits or dividends you receive from this ISA are not subject to income or capital gains tax.
Investing £20k per year in a new fund means building up a varied portfolio of stocks and shares ISA.
If you are looking at your options for the next financial year, consider a different option to what you already have even if your current ISA is performing well.
Again, always good to spread the risk and maximise the profit potential.
Choosing an ISA Provider
Some of the current stocks and shares options on offer are from household names that you will recognise, such as Fidelity, Legal & General or HSBC, while others are those that you are less likely to have heard of although this shouldn’t put you off choosing any one specific ISA provider.
It is worth taking a little time to look at the various providers and does some background research. A quick internet search will tell you more about the company you want to invest your funds with.
Choosing a popular brand may come with more of a premium than choosing a lesser-known company, but that may also carry the additional security and peace of mind that comes with choosing a household name that is tried and tested.
Choose Something that interests You
As well as choosing the best return on investment, you can have a little fun with stocks and share ISAs. Perhaps you have a keen interest in technology? If you like to follow the performance of top tech giants such as Apple, Google and Facebook, choose an ISA that invests your funds in these companies.
Use your knowledge of the tech industry and have some fun following the performance of your FTSE Global Technology Index Tracker Fund from Legal & General for example.
The Cost of Stocks and Shares ISAs
How much will it cost you to open a stocks and shares ISA and manage it going forward? Usually, there is an annual account fee. This can be anything from £0 – £100. In addition, there is a fund fee of anything up to 0.45% of the portfolio value to consider.
Transaction charges of £1 – £12.50 will apply each time you buy and sell shares. If you have a larger portfolio and make regular trades, it is worth considering an ISA with a flat fee, such as Interactive Investor.
Bearing these charges in mind, you must get the most out of the benefits of the ISA, including investing more than the minimum each month.
Ease of Use & Accessibility
In today’s world of modern technology, investors look to manage their investments on the move.
Easy access to the performance of your ISA is important if you want to stay up to date with your investments 24/7. Mobile accessibility is a must if this applies to you.
Remember the Risks
The value of investments can go down as well as up, so be prepared to lose money. Choosing wisely will ensure you minimise the risk; however, you need to bear this in mind.
There is no get-rich-quick scheme so only invest if you have no outstanding credit card bills to pay and understand the risks. When considering the best stocks and shares ISA, it is critical to understand the risks.