Stocks and shares ISA comparison
In a nutshell
A stocks and shares ISA is a product that lets you invest your money in the stock market.
They’re good for people with money to put aside each month to invest for the long-term.
- Potential for higher returns.
- No tax on interest, profits or dividends.
But watch out for:
- Investments can go up and down.
- Fees can take a chunk of your investment.
What is a stocks and shares ISA?
A stocks and shares ISA is a type of ISA which lets you invest money in the stock market. You can invest up to £20,000 per year tax-free.
Through your stocks and shares ISA you can invest in whatever you like.
For example, you might open an account with one of the providers in the table above, and invest in companies like Greggs, Boohoo or Barclays, choosing the shares yourself.
Or you might have a managed account with one of these providers, and let their experts look after the money for you.
You don’t pay tax on the dividends or interest earned, and you don’t pay capital gains tax (CGT) on any profit that the investments within your ISA might make.
With a stocks and shares ISA your money is at risk – but the potential reward is growth on your investments that is higher than your average savings accounts.
Should I open a stocks and shares ISA?
Before you ask this, ask yourself what your financial goals are and what your current situation looks like.
- If you’re able to put money aside and leave it for a long time, then a stocks and shares ISA is a good bet.
- If you have lots of debt, you should look into ways to clear debt first.
- If you might need quick access to the money, you should look into a current account or easy access savings account.
- If you want to build a pot of money and still earn interest, look into simple savings accounts.
Before you open a stocks and shares ISA thinking you’re the next Warren Buffet, you need to weigh up whether you’re willing to take risk that comes with investing.
In the 2008 crash for instance, many people’s stocks and shares ISAs lost a lot of value. We’ve gone into just how badly it hit people’s stocks and shares below.
A simple rule of thumb is this: if your investments are going to keep you up at night, don’t do it.
How much do stocks and shares make?
Over the last 50 years, stocks and shares have returned 5.4% per year, while savings accounts have returned 1.9%.
Exactly how much you could make depends entirely on how much you invest, what you choose to invest in, and how long you invest for.
Let’s say for example you invested £10,000 in the FTSE 100 over a time period of 10 years (this is sometimes called an “investment horizon”).
This graph shows the rough difference between investing your money in the FTSE 100 and putting it in your average savings account. You can toggle to the table to see the numbers in a bit more detail.
Investing in FTSE 100 vs average savings over 10 years
|Year||FTSE 100 return rate (%)||Yearly return (GBP)||Average savings interest rate (%)||Yearly savings return (GBP)|
You can see the FTSE 100 had some good years and some bad years in that time.
2018 stands out as a poor year. Brexit and uncertainty around the US-China trade war put investors off, harming returns.
Then there were some good years. Yay!
The index returned 18.7%, 19.1% and 17.3% in 2013, 2016 and 2019 respectively.
Overall, for the entire 10 year period, the FTSE 100 generated a total return of 103%.
So if you’d invested £10,000 at the start of 2010, you’d have about £20,398 by the end of 2019.
If you had a stocks and shares ISA and had invested in the FTSE 100 index between 2010 and 2019, you’d have made roughly 7.4% a year. Compare that with average interest rates for savings over that time (around 1.5-2%) and you can see why lots of people turn to investing.
The risks of stocks and shares ISAs
It’s not always plain sailing with stocks and shares. Remember the financial crash in 2008?
The FTSE 100 had a terrible year in 2008, returning -28.3%.
If you’d invested £10,000 in 2008, it would have been worth just £7,170 by the end of the year.
If you’d started investing in 2008 and held your investment until the end of 2017, your annualised return for that 10 year period would be 5.7% – due to the heavy losses of the financial crash.
This is why investment returns become more stable and reliable over a longer time horizon. There’s more time to even out the peaks and troughs.
We’re not trying to spook you, just illustrating the impact of losses and the risks that come with investing.
Cash ISA or stocks and shares ISA?
They’re for different things.
A cash ISA is a better place to put your money if you might need it in the shorter term and want to take minimum risk.
A stocks and shares ISA is the opposite. If you want higher returns over a longer period and can stomach the risks, then this is the one for you.
What else do I need to know?
- To open an ISA you have to be 18 or older.
- You must be a UK tax resident.
- You can only open one stocks and shares ISA per tax year.
- You can transfer-in to most new ISAs for free.
Frequently asked questions
Read more on this topic
Robinhood review US investing app Robinhood has arrived in the UK, see how it works and how you can get access now.
evestor review We take a closer look at evestor, which allows investors to get started from £1.
How to buy Nvidia shares | $223.99 Ever wondered how to buy shares in Nvidia? We explain how and compare a range of providers that can give you access to many brands, including Nvidia.
Wealthsimple review Like the name suggests, Wealthsimple aims to simplify wealth-building for its customers. Find out how it works in our review.
Moneyfarm review Moneyfarm offers digital investment management for those looking to build their wealth.
How to buy Verisk Analytics shares | $162.43 Ever wondered how to buy shares in Verisk Analytics? We explain how and compare a range of providers that can give you access to many brands, including Verisk Analytics.
How to buy Ross Stores shares | $118.13 Ever wondered how to buy shares in Ross Stores? We explain how and compare a range of providers that can give you access to many brands, including Ross Stores.
How to buy Sherwin-Williams shares | $580.37 Ever wondered how to buy shares in Sherwin-Williams? We explain how and compare a range of providers that can give you access to many brands, including Sherwin-Williams.
How to buy Torchmark shares | $N/A Ever wondered how to buy shares in Torchmark? We explain how and compare a range of providers that can give you access to many brands, including Torchmark.
How to buy TransDigm Group shares | $596.26 Ever wondered how to buy shares in TransDigm Group? We explain how and compare a range of providers that can give you access to many brands, including TransDigm Group.