If you’re looking to invest in a stocks and shares ISA for the first time, it can be tricky to know where to start. So to help, I’ve taken a look at the key things you need to know in order to start investing.
What is a stocks and shares ISA?
A stocks and shares ISA is simply an investing account with one key difference. ‘ISA’ status means that you don’t pay tax on any returns. Because of this, if you are looking to invest, opening an account within an ISA wrapper is usually a smart idea.
It’s worth knowing that you are limited as to how much you can invest in an ISA in a single year. For the 2021/22 tax year, up to April 2022, you can invest up to £20,000. If you don’t use this allowance in a given year, then you can’t roll it over to the next financial year.
Crucially, your annual ISA allowance applies to any type of ISA. For example, if you open and save £8,000 into a cash ISA in one tax year, then you can then only deposit £12,000 into a stocks and shares ISA within the same tax year. For more on this, see our article on the ISA limit.
How much does it cost to open a stocks and shares ISA?
The cost of opening a stocks and shares ISA varies by provider. For example, if you’re looking to choose stocks and shares yourself, then you’ll probably pay a lower fee than you would if you paid someone to manage your investments for you. Whatever route you take, it’s important to take into account the two main fees involved with opening a stocks and shares ISA:
- Platform fee: This is a fee the share dealing platform will charge you for hosting your funds.
- Share dealing fee: This is a fee you are charged every time you buy stocks or shares.
These fees can vary massively between providers. For example, some providers offer zero share dealing fees but charge a hefty platform charge. That’s why it’s always a good idea to weigh up the total costs.
For example, if you’re looking to trade regularly, it’s probably a better option to go with a share dealing account that offers a cheaper share dealing fee. However, if you’d prefer to buy and hold stocks for the long term, then it may be better to look at accounts with a cheaper platform fee instead. FinecoBank and Hargreaves Lansdown both offer zero platform fees.
For the lowdown on fees, see our list of the top-rated share dealing accounts for beginners.
How can I open a stocks and shares ISA?
Opening a stocks and shares ISA is similar to opening a normal share dealing account. When you open a share dealing account, you’ll usually be given the option of opening the account within a tax-free ISA wrapper. Select this option and you’ll be opening a stocks and shares ISA.
Alternatively, some providers will instead require you to open a stocks and shares ISA account, separate from their non-ISA offerings. If this is the case, ISA products are usually well signposted, so there’s little risk of you opening a normal investing account by accident.
If in doubt, you may wish to contact your share dealing provider via their website. Many platforms provide the option of contacting them through an online chat function.
What else do I need to know?
The first rule of investing is to understand the level of risk you’re comfortable with. That’s because it can help you determine what stocks, shares or bonds to include in your portfolio. For more on this, see our article on how to decide where to invest.
It’s also worth knowing that you don’t need a small fortune to start investing in a stocks and shares ISA. That’s because many of the top-rated share dealing platforms allow you to invest as little as £1. This is also good news if you’re keen to test the investing waters, rather than diving straight in.
As with any investing, remember that the value of your investments can fall as well as rise. Always be aware of the fact that your investment capital is at risk.
Are you completely new to investing or keen to access more tips? Take the time to read our comprehensive guide on the basics of investing.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The post What is the best stocks and shares ISA for beginners? appeared first on The Motley Fool UK.
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