03 May 2016

Stocks and Shares ISAs: Don’t be scared of shares

4 minute read

  • The ability to use the annual ISA allowance for either saving into a Cash ISA or investing into a Stocks and Shares ISA, and to switch between the two and back again, was introduced in April 2014
  • Currently the tax-free annual ISA allowance stands at £15,240, while next year it’s been announced that it will rise to £20,000
  • According to government figures, Stocks and Shares ISAs now make up just under a quarter of the total ISA assets* - and that share is predicted to grow.

Rob Angus, Nationwide’s Head of Protection & Investment, explains why in his view savers shouldn’t be afraid to invest in a Stocks and Shares ISA.

Having a Cash ISA is considered to be a safe, low-risk haven for savings. Yet keeping your money entirely stashed in cash at a time when interest rates are at historic lows means that, over time, inflation can eat away at the value of a savings pot and lose money. So I think it’s definitely worth looking at an alternative plan to invest a portion of the savings pot into a Stocks and Shares ISA.

It’s true that some people are put off the idea of saving in a Stocks and Shares ISA because they assume they will be complicated, even frightening, to understand. In fact, there are many ways to make use of them, and having a Stocks and Shares ISA as a means to building up your savings pot can be straightforward. Also, you can start with a relatively small amount as you build up your confidence and knowledge.

In addition to giving greater flexibility, investing can help to achieve a potentially higher return than putting just cash into a traditional savings account or Cash ISA. Returns from your Stocks and Shares ISA are also protected by being retained in the ISA wrapper, so there is no additional amount to pay on any gains, such as capital gains tax or tax on the income you receive, so it’s a really tax-efficient way of saving.

History of performance of Cash ISA versus Stocks and Shares ISA over time**

ISA chart

“As a starting point, it’s important to understand that Stocks and Shares ISAs are designed to be used for longer-term savings goals. The reason is that while there may be peaks and troughs on the investment markets, over the longer term the trends show that they tend to even out.”

They are designed for savings made over the medium to long term, which really means for at least six years and beyond - think in terms of saving for the costs of university or for your own retirement. The key to having a suitable balance is to make sure that you have sufficient ‘rainy day’ savings in easily accessible accounts, such as a savings account or Cash ISA, which can supplement what you then save for the longer term in a Stocks and Shares ISA.

It’s important before starting out to assess, realistically, what your attitude is towards the risk of your money falling in value and to think about the amount you want to invest and for how long. Also, choose how best to access Stocks and Shares ISAs - online, by telephone or in person - as well as the options for regular monthly investments or lump sums.

Whatever your route in or the choices you make, I would encourage people to think about opting for a Stocks and Shares ISA. It’s a tax-efficient way to help you build up your wealth over the longer term enabling you to reach your savings goals, whatever your ambitions may be.

*Stocks and Shares ISAs subscriptions made up £17.9 billion in 2014/15, 23% of the £79 billion total ISA subscriptions. More information on ISA statistics.

**This is an illustration of the average returns on a Cash ISA and a Stocks and Shares ISA Cash ISA: assuming maximum subscription per year, average ISA savings rate for year and showing the revised total balance plus interest. Stocks and Shares ISA: assuming maximum subscription per year, average return on a model portfolio index-linked, and showing the total returns after annual investment.

Past performance is not a guide to future performance. The value of investments can go down as well as up which could mean you may not get back the amount you originally invested.

Nationwide is not responsible for the content or availability of external websites. Nationwide does not make any recommendation or endorse any advertising, products, services or other content on such external websites. Views expressed on third party websites are those of the public and unless specifically stated, are not those of Nationwide.

About the author

Rob Angus

Rob Angus is Nationwide’s Head of Protection & Investments - responsible for managing the Society's investment and protection products for more than 750,000 customers, with over £12bn invested.

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