Stocks & Shares ISAs
Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.
ISAs are one of the most popular investment types in the UK but they can still be a cause of confusion or misunderstanding and in this blog we’ll aim to give you a better picture of how the two main ISA types work.
What is an ISA?
ISA stands for Individual Savings Account and it is quite simply a tax-free savings or investment account where you won’t pay any Income or Capital Gains Tax on the interest your ISA generates or the increase in investment value.
You can invest up to £20,000 in an ISA during the current 2020/21 tax year which ends on 5th April 2021. You can have as many ISA accounts as you like, however you can only pay into one Stocks & Shares ISA and one Cash ISA in a tax year.
Your £20,000 a year allowance can be split any way you like between a Stocks & Shares ISA and a Cash ISA. With a True Potential Stocks & Shares ISA, you can withdraw your money at any time.
Cash ISA vs Stocks & Shares ISA
The two most popular types of ISA are the Cash ISA and Stocks & Shares ISA. They aim to grow your money in very different ways, with Cash ISAs being linked to a set or variable interest rate, whereas Stocks & Shares can go up or down depending on the performance of the investment they are linked to.
Cash ISAs hold your money and pay interest based on the interest rates of the account. These accounts are practical if you intend to use the cash in the short-term. While Cash ISAs can be useful if you have a short-term goal, low interest rates and higher inflation limit their effectiveness for longer-term goals. Typical interest rates are calculated around the Base Rate set by the Monetary Policy Committee of the Bank of England.
With a Cash ISA, you may have to lock your money away to get higher interest rates and you may have to pay a penalty if you need access earlier. You should also keep in mind that while many banks offer twelve-month introductory rates, these can fall dramatically after year one.
- Earn tax-free interest on your cash savings
- All UK residents over the age of 16 can open an account
- Instant access to cash if you hold a variable rate account
- Teaser rates that are higher for a short period before dropping to a much lower level
- Fixed-term Cash ISAs may have penalties and potential charges on early withdrawals
- Low interest rates, current interest rates are below inflation, which means your money is losing buying power over time
Think about it like this, if you have £1,000 in a Cash ISA, that grows at a rate of 1% each year, after 5 years you would have £1,051. However, if UK inflation was at 2%, your £1,051 would only have the same buying power as £950.
Stocks & Shares ISAs
A Stocks & Shares ISA is a tax-efficient investment account that lets you put money into a range of different investments, including unit trusts, open-ended investment companies and investment trusts, as well as Government bonds and corporate bonds.
You can invest up to £20,000 in the 2020/21 tax year. This type of ISA is potentially suitable for long-term investment of at least five years. Stocks & Shares ISAs have the potential for much greater returns than a Cash ISA.
Why Invest a Stocks & Shares ISA?
- Decide where to invest, including multi-asset funds and managed portfolios
- Set a level of risk that suits you
- Better potential returns, for example, if you invested £300 every month for 20 years, you would have invested £72,000 but this could of grown to an estimated value of £109,000, based on 5% annual growth and fees. That would mean your money has grown by £37,000.
Our Stocks & Shares ISA
True Potential understand that everyone has different levels of comfort when it comes to risk. We manage risk using global diversification. Through our fund partners we have access to over 10,000 experts in 250 locations, and this global diversification approach aims to maximise your returns and reduce your risk.
Your money will be invested in one of our Fully Managed Investment Portfolios, with our expert in-house investment team spreading your investments across thousands of global holdings. Our fund partners include major names such as UBS, HSBC, Blackrock, Goldman Sachs Asset Management, along with True Potential Portfolios, giving you the opportunity to grow your money with some of the world’s most renowned fund managers.
You can keep up to date with your investments, our award-winning technology which can help you set financial goals and track your investments. We also created our word first impulseSave® function, which allows you to top up your investment from £1 24/7 via desktop or mobile devices.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice. The example calculations take into account our average annual fee of 1.16%, they don’t take into account the impact of inflation, which will reduce returns, and assumes you only make the contributions as set out.