28 March 2017

ISA trends shift to the markets

The ISA (Individual Savings Account) continues to be the most tax-efficient option for British savers and investors.

But in the face of the lowest interest rates in history, more Britons have looked to the markets – choosing to invest in stocks and shares ISAs.

“For savers looking for ways to make their money potentially work harder, the stocks and shares ISA, which is linked to the market through investments such as corporate and government bonds, company shares or funds, is an alternative to a cash ISA.” says Nationwide Financial Planning Director, Richard Gray.

This trend is shown by the relative reduction in the number of cash ISA accounts being taken out, which fell for the third year in a row in the 2015/16 tax year compared to their stocks and shares ISA counterparts, according to a 2016 Mintel study.

Making the most of your annual allowance

The annual ISA allowance for 2016/17 (ending on 5 April) is £15,240, and you can choose to pay the whole allowance into a stocks and shares ISA or split it across the three different ISAs available – stocks and shares, cash and innovative finance ISA.

You can pay in money in one lump sum or in regular payments, but it’s worth noting that any unused allowance expires at the end of the financial year and cannot be rolled over.

The new financial year will start on 6 April 2017 and the new annual ISA allowance will be £20,000.

So, as investors plan to make the most of their annual £15,240 ISA allowance (for 2016/17) before the end of the tax year on 5 April 2017, we look at how stocks and shares ISAs work.

Find out more about the 2017 ISA changes

The search for higher returns

In the current economy, more people are choosing to invest in a stocks and shares ISA. There is a potential to get a higher return with a stocks and shares ISA but it’s also riskier because the value of your investment can go down as well as up so you may get back less than you originally invested.

It's important to consider timing when investing in stocks and shares. Leaving your investments in place for longer periods – five to six years is often cited as a good minimum time period – as this allows you to ride out bumps volatile markets may experience.

Investors should weigh up their search for potential higher returns against their risk appetite by considering things such as how much money they can afford to lose without causing financial hardship.

Money on the move

As time goes by, people’s circumstances change and they may want to move their money from a stocks and shares ISA into a lower risk cash ISA.

However, there are rules about how money can be moved between ISA accounts. So investors should consider this carefully before making any decisions.

All ISA providers will let investors remove funds from a stocks and shares ISA, but not all will allow money to be transferred into one of their stocks and shares ISA products. So it's important to check before removing the funds.

If the transfer is from an ISA which was opened and paid into in that financial year, the whole balance must be transferred. However, if the ISA is from a previous financial year, the investor can choose how much to move.

Are you thinking about using your annual ISA allowance in a stocks and shares ISA? 

Why not have a chat with a Nationwide Financial Planning Manager?

Important information

Please remember that the value of your investments can go down as well as up so you may get back less than you originally invested.

The tax information provided is based on our understanding of current law and HM Revenue & Customs practice, both of which may change.

Nationwide offers a range of cash ISAs. Stocks & shares ISAs through Nationwide are provided by Cofunds.

As part of Nationwide’s financial planning service, your Financial Planning Manager will advise and make a recommendation for you after assessing your needs. Please note, we offer restricted advice on a limited range of carefully selected products available through Cofunds. You may ask us for a list of the companies and products we offer advice on.

You need to be aged 18 or over and be resident in the UK to hold a stocks & shares ISA.

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