Are Stocks and Shares ISAs Worth It?

You may well have heard people talk about stocks and shares ISAs and wondered what all the fuss is about. Are stocks and shares ISAs worth it? Read on to find out.

What are stocks and shares ISAs?

Stocks and shares ISAs have a lot of benefits. They can be a really good way to start investing, and they are also used by many seasoned investors.

Essentially, they are tax-efficient investing accounts. You can invest up to £20,000 in an ISA each year without paying tax. A lot of people want to make the most of that benefit!

How do stocks and shares ISAs differ from other ISAs?

There are a lot of different types of ISAs, all of which have unique qualities. You may have heard of Lifetime ISAs or cash ISAs. These have their own benefits but generally operate very similarly to savings accounts.

Rather than simply being a savings account, a stocks and shares ISA is an investing account. You don’t hold cash, you hold stocks and shares – as the name would suggest.

What are the average returns of stocks and shares ISAs?

Like any investment, stocks and shares ISAs can go up and down in value. Over time, you’re likely to see an increase if you invest in one. While this is not guaranteed, average returns on these ISAs are very strong.

Stocks and shares ISAs have historically performed relatively well. The most recent data available — for the tax year 2021/22 — showed the average Stocks and Shares ISA returned 6.92%.¹

Good for long-term, cost-conscious investors who want lots of flexibility

Interactive Investor Stocks and Shares ISA *

Risk Warning Investments are complex and involve various risks, and you may get back less than you put in. Tax benefits depend on individual circumstances and tax rules, which could change.

The value of your investments can go down as well as up and you may not get back all the money you put in. All investments carry a varying degree of risk and it’s necessary for you to understand the nature of these risks. You should consider whether you understand how Stocks and Shares ISAs and Robo-Investing products work and whether you can afford to take the risk of losing money. Remember that taxes can be complicated and the tax benefits of these products depends on your personal circumstances. Tax rules are subject to change. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Click here to learn more

Trading Commission	From £3.99
Account Management Fee	From £4.99 (Depending on Subscription Plan)

• Pros & Cons
• Fees & Charges

Pros

• Fixed monthly subscription fees.
• Free monthly trades included depending on plan.
• No fees on regular investing schemes.
• Wide investment range across global markets.
• Curated investment tools (Quick-Start Funds, Super 60 shortlist).
• Regular investing tools to automate wealth-building.
• Solid educational resources and expert insights.
• User-friendly platform for managing portfolios.
• Access IPOs and bond launches.
• Hold and earn interest on foreign currencies.

Cons

• Monthly fees can feel steep for small portfolios.
• No fractional share trading.
• Free trade credits expire every 31 days.
• Large trades (greater than £25,000) can incur additional costs.
• No AI-driven tools or robo-advice features.
• Alerts and watchlist capabilities are pretty basic.

Subscription Plans

• Investor Essentials (£4.99 per month) – This is the entry-level subscription for investors with less than £50,000. It allows for free regular investing where a small sum of capital is drip-fed into a selection of eligible investments at no cost. You can also include a Stocks and Shares ISA under this plan.
• Investor (£11.99 per month) – In addition to the features of the Investor Essentials plan, the Investor plan removes the £50,000 limit, allows the addition of Junior ISAs, provides a free membership to two family or friend members, and grants one free trade per month.
• Super Investor (£19.99 per month) – In addition to the features of the Investor plan, the Super Investor plan grants up to four free trades per month, as well as up to five free memberships to family and friends. It also provides discounts on international trading fees.

Additional Fees

• Share dealing (online) – The standard trading fee for UK shares and funds, and US stocks is £3.99 across all subscription plans. For any other international investment, the trading fee is £9.99, or £5.99 when using the Super Investor plan.
• Share dealing (phone) – II charges a flat £49 for trades executed over the phone. Note that free trade credits from subscriptions cannot be used for phone trades. Furthermore, buying or selling shares listed on exchanges in Sweden or Switzerland can only be executed over the phone.
• Large transaction fees – When buying or selling UK shares with a trade value exceeding £100,000, there is an additional £40 fee. When buying or selling US shares with a trade value exceeding £100,000, there is a 0.04% fee. When buying or selling other international shares with a trade value exceeding £25,000, there is a 0.1% fee.
• Dividend Reinvestment – £0.99 per automatic reinvestment.
• Foreign exchange – When trading internationally, Interactive Investor will charge a foreign currency exchange fee unless you have sufficient funds of the required currency already in your account. The fee depends on the transaction size.
  • £0 to £24,999 – 1.5%
  • £25,000 to £49,999 – 1.25%
  • £50,000 to £99,999 – 1.0%
  • £100,000 to £599,999 – 0.5%
  • £600,000 or more – 0.25%
• International investor fee – If you are no longer a UK resident, Interactive Investor will still allow you to keep an existing account. However, there is an additional £4 a month subscription fee required. However, as a non-UK tax resident, you cannot continue to contribute to a Stocks and Shares ISA.
• Deposit fee – None.
• Withdrawal fee – No fees for next-day withdrawals. A £15 fee for same-day withdrawals, which must be requested before 2pm.

Why should you consider stocks and shares ISAs?

There are a lot of reasons to think about stocks and shares ISAs.

Tax advantages

Currently, stocks and shares ISAs come with significant tax advantages.

The total amount you can save in ISAs in the 2022-2023 tax year is £20,000. This ISA limit is set by the government and is subject to change from year to year.

Any money up to this limit put into ISAs is tax free. This means investors won’t have to pay any tax on dividends or gains realised while investing in stocks and shares ISAs.

The tax year runs from 6 April to 5 April. HMRC’s deadline to put money in an ISA and take advantage of your allowance in a tax year is midnight on 5 April.

Higher returns on your investments

Investing isn’t always smooth sailing, but over time investments in stocks and shares ISAs tend to increase in value.

So if you invest in this type of ISA, over time, you may well end up with more money than you originally invested.

Protection against inflation

Inflation is high at the moment. Keeping savings in cash effectively means losing money over time, particularly while interest rates are so low.

If you keep £1,000 in cash for a year, you’ll be lucky to get 0.25% interest on it. This would give you a total of £1002.50 at the end of the year.

However, let’s say inflation is 5%. For your £1,000 to be worth the same in a year’s time, you would need £1050.

While you will struggle to make this extra £50 in a savings account, a stocks and shares ISA might be able to help you out.

Transferable between providers

Stocks and shares ISAs can be moved from one provider to another without any tax-free benefits.

As long as you follow the ISA transfer rules – which your provider will be able to tell you about – you can move your ISA to a different company without losing any of the benefits you have gained during the tax year.

This gives you the freedom to shop around for better rates and lower fees, meaning you can take advantage of deals whenever you come across them.

Protection if your provider collapses

If your stocks and shares ISA provider goes out of business your money and assets are protected by the Financial Services Compensation Scheme (FSCS) as long as the provider is regulated by the Financial Conduct Authority (FCA).

Meanwhile, if the fund manager of a fund you invest in goes bust, your underlying assets will also be protected. The stocks owned by any fund are held separately by a trustee or a depositary. This means that if its fund manager goes under, then the investments in the fund are unaffected.

What are the criteria for getting one?

Most people in the UK are eligible for stocks and shares ISAs. The only criteria are that you must be:

• Aged 18 or over
• A UK resident (for tax purposes)

You can only pay into one stocks and shares ISA per tax year.

Should you invest in stocks and shares ISA?

Whether or not a stocks and shares ISA is right for you is a personal decision and will depend on your own circumstances. If you’re looking to start investing, stocks and shares ISAs are well worth considering as a starting point. Check out our top stocks and shares ISAs in the UK to get started today.

Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of 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.