The countdown is on: you now have less than two weeks to make the most of your tax allowance.
This year you can put up to £20,000 into an Individual Savings Account (ISA) and as that money grows, it will remain completely tax-free. In other words, every penny you earn from interest is yours to keep.
The only problem is that those pennies aren’t buying as much as they did last year and low interest rates aren’t doing much to help.
It’s no surprise then that many life-long savers are considering other options: “What really motivated me to consider a stocks and shares ISA was the potential for high returns,” says college lecturer Ash Zaver. “My savings were in a cash ISA and becoming stagnant”.
Ash is part of a growing number of savers now enjoying the benefits of investing. “I took the emotion out of the decision, looked at the facts and read up on it,” he says. “Once I familiarised myself with the process, it was easy to understand.”
With over two million people investing in a stocks and shares ISA in the 2016/17 tax year, cash ISAs are starting to look like an endangered species. But if you’ve never invested before, where do you start?
What is a stocks and shares ISA?
A stocks and shares ISA is essentially a wrapper that keeps the returns from a wide range of investments free of tax. It stops the taxman from taking a bite out of any profit you might make when you decide to sell your investment.
Similarly any regular or one-off payments (dividends) will also be free of tax. So, it begs the question: why are more people not putting all their allowance into a stocks and shares ISAs?
“I don’t think this information is widely known,” says 26 year old entrepreneur Alex Zed. “But once I was up and running it was incredibly easy”.
To make his money work harder, Alex transferred some of his salary every month to regularly top-up his investments. ‘Drip-feeding’ payments into a stocks and shares ISA is a great way for first-time investors to get started, as it can help smooth out the risks associated with investing. It means that when an investment falls in value you end up buying more and when prices are high you buy less.
How do I get started?
Understanding your own personal attitude to risk and capacity for loss should be the first step in your investment journey. Ash Zaver only started investing in his 60s but already has a better understanding of his own risk tolerance. “Even though I’m just scratching the surface at the moment, I’m probably inclined to take on more risk now,” he says.
Time is an important factor when considering your risk level, as stocks and shares ISAs are only suitable over a period of three years or more. This is because investments will rise and fall but over the long-term, the movement of the markets has always been upwards.
Do I need an online investment manager?
Once you have a better idea of how much risk you’re willing to take, you need to choose an ISA provider. Some providers will allow you to select the investments that you want to include in your ISA. However, if you would prefer to have your investments selected, managed and monitored by experts, you may want to consider opening a Click & Invest Stocks and Shares ISA.
The Click & Invest stocks and shares ISA allows you to transfer any old ISAs with one simple form and will not charge you for withdrawals. Our team of fund researchers and investment managers will actively try to beat the market instead of just track it.
Ash knows there are many factors to consider when investing in a stocks and shares ISA for the first time but that shouldn’t stop anyone from letting the deadline slip away. “When investing, you should weigh up not just the risks but also the benefits. You will find the whole process relatively straightforward”.
The deadline for opening a stocks and shares ISA is 5 April. Click here to find out more about making the most of your allowance.
All investment carries risk and it is important you fully understand these risks and are willing to accept them. You may get back less than you invested. The tax advantages of ISAs may change in the future and also depend on your individual circumstances.