If you’re an investor, you may have seen the Fidelity stocks and shares ISA pop up in your newsfeed as an opportunity to grow your money and it piqued your interest. But what is it? What does it offer that others don’t?
And more importantly, is it right for you? The answer to that last question depends on what you want from your investments in the first place and whether they are compatible with the features this particular product offers, so let’s take a look at what they are first!
1 Why get an ISA?
Here's why you should get an ISA. In short, it's where you can earn tax-free interest on your savings, or tax-free dividends if you're invested in stocks and shares.
But how much could you save? Let's take some simple numbers: if your ISA earns 4% each year in interest, after 20 years (when the account is closed) you'll have around £6,600 more than with regular savings.
Not bad! The best part of ISAs are that they allow 100% of investment growth to compound tax-free for as long as possible.
The longer your money has to grow over time, without being touched by taxation or inflation, means bigger savings down the line.
2: Taxes on income
The income from your stocks and shares ISA will not be taxed as dividends when you take them out of your account.
If all of your savings are in your ISA, then all of them will be tax free.
However, if you also have taxable savings, such as in an ordinary cash account or other vehicle, then only some of them will be taxed as usual.
When choosing a stocks and shares ISA make sure to choose one that has as low a level of fess as possible. That way all or most of your interest can compound without being whittled away by charges.
3: Investments in the Shares ISA
Each year you can invest up to £20,000 in your Shares ISA with Fidelity. This can be shared between your Cash ISA, Stocks & Shares ISA, or between both types of account.
How much you’re able to invest will depend on how much of your annual allowance has already been used – any remaining amount will have to remain invested in an emergency savings account.
It's important to remember that once you've made your initial investment into either type of ISA account, there are other ways you can save towards achieving your overall investment goal:
setting up regular payments via Standing Orders;
directing funds from your everyday accounts such as current accounts and high interest bank accounts;
or simply by saving part of each month's salary.
4: Who offers ISAs?
ISAs are offered by banks, building societies, and other financial institutions such as insurance companies.
You can choose from an almost limitless range of ISAs for different types of savings:
cash ISAs;
stocks and shares ISAs;
junior saver ISAs;
lifetime ISAs;
innovative finance ISA (IFISA);
small self-administered scheme (SSAS);
stakeholder pensions etc.
Your bank may offer a range of packages to choose from - you need to look carefully at what each one offers before deciding on which type of account will best suit your needs.
It's a good idea to look out for special features such as no fees, easy access or preferential rates on interest - but be aware that these might mean higher charges if you don't use all the features they offer.
5: Do I need to pay tax when I withdraw from my ISA?
You will not have to pay tax when you withdraw from your ISA. Both basic-rate taxpayers and additional-rate taxpayers will not need to pay any tax at all.
6: How long can I keep ISA money?
Individual Savings Accounts (ISAs) are an amazing way to grow your savings tax-free. With an ISA, you’re able to invest up to £20,000 for 2022/23 in a range of investment options.
While your money will benefit from tax-free growth as long as it stays within your ISA wrapper, there’s one thing many people are confused about: how long can I keep my ISA money? And more importantly, how do I get my hands on that cash once my ISA term has come to an end?
7: Can I switch ISAs from year to year?
Yes, switching ISAs from year to year is possible.
You can purchase new funds each tax year (this runs from 6 April to 5 April).
This means that you could switch between funds if your circumstances change. It's important to remember that these purchases will count as new investments for future ISA allowances purposes.
8: Are there any risks with investing in the share ISA?
An ISA, like all investments, comes with risk. The volatility of investment markets means that share prices can rise or fall rapidly.
It's very important to think about how your savings will perform in different market conditions before you invest.
You can do that by looking at historical share price movements and studying stock market predictions. But remember, past performance doesn't guarantee future results - there's no way to know for sure what will happen in future market conditions.
Your capital is at risk: Investing in stocks can mean losing money as well as making money. When investing in corporate bonds, some of which are issued by overseas governments, your capital could be at risk if those governments default on their debts.
9. Are there advantages to investing in a cash ISA over buying individual shares directly on the stock market?
There are two big benefits to a cash ISA.
The first, which we’ve already touched on, is that they offer you some peace of mind as there’s no chance you’ll lose your money in an unexpected market crash.
The second advantage comes from how they take care of your tax bill. With a cash ISA all income, including interest and capital gains, will be subject to a nil rate of tax.