The potential benefits of a stocks and shares ISA

The year 2019 marks the 20th birthday of the ISA, and today there is more than £600billion invested in the product, by 22 million people - so what's driving this incredible popularity?

By Alistair McQueen

More than half of this money is invested in stocks and shares ISAs – that’s more than £330billion 1.

Stocks and shares ISAs have the potential to beat inflation

When you save in a cash ISA you’ll receive a rate of interest on your savings and they won’t go down in value. This certainty may be comforting for some, but what you don’t know is how your interest rate will perform against the cost of living – otherwise known as inflation. Savings are great to have for any unexpected expenses that may arise in the short term and they can be very complimentary to a long-term investment plan.­­­

The stocks and shares ISA gives you a way to potentially beat inflation as what you get back will be determined by the performance of your underlying investments. However, you will need to accept the risk that your investment could go down in value as well as up and you could get back less than you started with.

All ISAs are tax efficient

For stocks and shares ISAs, any potential investment growth is exempt from capital gains tax and any income is exempt from income tax. Any money you take from your stocks and shares ISA is then paid free of these taxes at the time.  This can make a significant difference over the long term – whether you’re investing for income or growth.

The exact tax benefits of an ISA will depend on your personal circumstances. It is also possible that the government will change how ISAs are taxed in the future. Some investment returns may be received by the ISA Manager with tax credits, or after tax deductions, which they cannot reclaim.

You have the ability to choose, diversify and change your investment options

And finally, most stocks and shares ISAs give you access to a wide range of investment choices. This allows you to find the investment option that feels right for you and allows you to diversify your money to avoid “all your eggs being in one basket”.

And don’t worry, you don’t have to be an investment guru to invest your money. Most ISA providers will provide handy guides to help you find the mix of investments that is right for you. And you’re not stuck with your choices either. Most stocks and shares ISAs will allow you to change your mind whenever you want, for little or no charge.

More than 22 million people have chosen to place their hard-earned savings in ISAs. And billions of pounds have been invested in stocks and shares ISAs. As we approach the end of this tax year, on 5 April, make sure you’re not letting this tax efficient opportunity pass you by.

Read more: The UK's attitude to investing.


Meet Alistair McQueen

Alistair is our Head of Savings and Retirement. As an economist, Alistair has 20 years’ experience in the financial services arena and is Aviva’s lead spokesperson on all issues related to personal finances, savings and retirement. He is a regular commentator in the media and a regular tweeter @hellomcqueen.