What is a Stocks & Shares ISA and how do they work?
In: Economics
This answer will give an overview of ISAs in general, which includes details on Stocks and Shares ISAs (S&S).
An ISA is a savings account that has extra benefits a normal bank account won’t give you. Namely, you don’t pay tax on interest or income generated by it. There are four kinds:
– Cash ISA
– Stocks and shares ISA
– Innovative finance ISA
– Lifetime ISA
You can put up to 20,000GBP into your ISAs every year in total.
A cash ISA is just like a savings account. It holds your money and applies a small interest rate. Generally this interest is slightly higher than on a savings account, but right now they are still very low.
A S&S ISA lets you invest your money into stocks and/or shares. This offers much better returns than a cash ISA, but has a risk of losing money if the markets go down in value. This is your best option if you want to save for the long-term and see a growth in your money. If you’re only saving for a few years (or may need to access your money quickly), this isn’t a good option.
Innovative finance ISAs allow you to directly invest in interesting companies. This is higher risk than a S&S ISA as you aren’t spreading your money around as much, but it can potentially give big returns. However this is very risky, and generally isn’t a good option for most people.
Finally the Lifetime ISA (LISA) is intended to help people save for their first house, or for retirement. It has a maximum investment of 4000GBP per year, and the government will match it by 25%. So if you invest 1000GBP, the government will give you another 250GBP. The catch is that you can only take out the money to buy a first house, or when you are 60. You can also only open one if you’re younger than 40, and must stop paying into it when you are 50. These are a great option for saving for a first home, as a guaranteed 25% return is much higher than any other kind of investment you can make.
If you want more information on any of this, please just ask.
Source: Personal experiance, and https://www.gov.uk/individual-savings-accounts
Latest Answers