Don’t let inflation destroy your nest egg: consider a stocks and shares ISA

Worried about inflation and rising living costs eroding your savings? A stocks and shares ISA might be the solution you’re looking for. Here’s why.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

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If you’re a saver, you might be worried about how spiralling living costs and rising inflation could affect your money. How do you protect your hard-earned nest egg right now? And how do you get the most from your money? Well, a stocks and shares ISA could be the answer. Here’s why.  

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What is a stocks and shares ISA?

A stocks and shares ISA is a tax-efficient way to invest money. Let’s break down the key features:

  • You can invest in a wide range of funds, shares, bonds and investment trusts.
  • You won’t pay tax on interest, dividends or capital gains.
  • If you’re over 18 and a UK resident for tax purposes, you can open a stocks and shares ISA (one per tax year). 

Unsurprisingly, you can only invest so much in ISAs each tax year. The government’s ISA allowance is £20,000 for the current tax year. That means you can either invest up to £20,000 in a single ISA or spread your money around various ISAs. Either way, you can only invest up to £20,000 in total.  

How can a stocks and shares ISA help your finances?

It all comes down to ‘diversification’, or spreading your money across different types of investments. For example, you might keep some savings in a cash ISA or a savings account with a competitive interest rate and place some money in a stocks and shares ISA.   

Why diversify? It’s simple: diversity allows you to manage risk while still making your money work for you. So, you could keep some of your nest egg in a cash ISA, because they are low risk, but invest some money in a stocks and shares ISA with the aim of making more significant returns.

What’s more, rising inflation rates erode the value of your money over time. In real terms, this means that the relatively low interest rates offered by savings accounts at the moment are chipping away at your hard-earned cash. You can offset some of these negatives by:

  • Investing what you can afford in a stocks and shares ISA
  • Choosing your investments wisely and keeping an eye on how they’re performing       

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Are there any risks you should know about?

Well, all investment carries some risk and there’s never any guarantee you’ll get back the money you put in. After all, the value of any investment can fall as well as rise. So, for this reason, stocks and shares ISAs are considered riskier than cash ISAs or regular savings accounts.

However, the value of your investments could rise, too, so if you’re prepared to take on some degree of financial risk, a stocks and shares ISA is an option. You might not want to invest your whole nest egg, though. Remember to only invest what you can afford to put to work, and always keep some emergency cash in a savings account so you can weather any unexpected financial storms.   

How do you open a stocks and shares ISA?

Stocks and shares ISAs are available from various providers like banks and building societies. However, it’s often cheaper (and easier) to go for an online investment platform. 

Depending on your preferences, you can either choose your own investments or opt for a ‘robo-advisor’ that chooses and manages your investments based on your personal risk profile. What works for one investor won’t necessarily work for another, so explore your options carefully before choosing an ISA.

Ready to open a stocks and shares ISA? Compare our top-rated stocks and shares ISAs and check out our top-rated robo-advisors!

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor 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. 

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