A guide to Stocks & Shares ISAs

Are you seeking a tax-efficient strategy to grow your wealth? A Stocks and Shares ISA (also known as an Investment ISA) could be just the thing. These accounts are becoming more popular, offering an opportunity for investment with various risk levels.

But what exactly is a Stocks and Shares ISA, and how does it function?

In this guide, we explore how Stocks and Shares ISAs work, discuss investment limits and provide step-by-step instructions for opening one with Saga.

What is a Stocks and Shares ISA?

A Stocks and Shares ISA is a tax-efficient savings account into which you can contribute up to £20,000 per tax year. However, rather than earning interest on your savings (like with a Cash ISA), your money is invested. While this approach aims for greater returns over the medium to long-term, it also involves some risk, as with any investment, and the value of your investment can rise and fall and you may not get back the original amount you invested.

How do Stocks and Shares ISAs work?

Curious about how Stocks and Shares ISAs work? It’s actually quite straightforward:

1. Investment choice: With Stocks and Shares ISAs, you can invest in a variety of assets such as funds, shares, stocks and bonds. You may choose an account that allows you to tailor where you invest, or one which offers ready-made portfolios.

2. Investing your money: Once you’ve selected a portfolio or asset/s, you start investing your money. There are multiple ways to do this, including depositing a lump sum and making regular monthly payments.

3. Returns and risks: Your investments can go up and down in value. It’s essential to understand that there’s a risk of losing money but also a chance of earning returns. According to Unbiased, in the last 10 years, the average return on Stocks and Shares ISAs has been 9.64% annually, versus 1.21% for lower-risk cash ISAs. Past performance is  not a reliable indicator for future performance.

4. Tax efficiency: The good news is that ISAs are tax efficient. Any returns you earn from your investments is protected from income tax and capital gains tax.

Stocks and Shares ISAs are usually best for mid to long-term investing (at least five years). If you’re new to investing, check out our beginner’s guide for more insights.

Stocks and Shares ISA rules

There are some rules to consider before applying for a Stocks and Shares ISA:

• Age: Stocks and Shares ISAs are only available to individuals aged 18 or over.
• Residency: You must be a UK resident for tax purposes.
• Allowance: In the 2024/25 tax year, your ISA allowance is £20,000 across all types of ISA. Remember that your ISA allowance doesn’t carry over to the next tax year.

How many Stocks and Shares ISAs can I have?

You can open multiple Stocks and Shares ISAs within a single tax year. This means you can contribute to more than one Stocks and Shares ISA.

Before the 2024/25 tax year, you were limited to opening only one ISA of each type annually.

Can I have both Cash and Stocks and Shares ISAs?

You can open and contribute to Cash ISAs and Stocks and Shares ISAs at the same time. Additionally, it’s possible to hold innovative finance ISAs and Lifetime ISAs alongside a Stocks and Shares ISA.

Remember that your ISA allowance per tax year is £20,000, and this limit is the total sum you can pay into all the ISAs you contribute to. Therefore, the total tax-free savings across your Cash ISAs, Stocks and Shares ISAs and other ISAs can’t be more than £20,000 each tax year.

You can transfer the cash value of any existing ISAs you hold with other providers. Transfers from previous tax years won’t affect your allowance for this tax year.

Read our ultimate guide to Cash ISAs for more information.

How to open a Stocks and Shares ISA

Setting up a Stocks and Shares ISA with Saga is straightforward. Just follow these steps: 

1. Open an account: To apply for a Stocks and Shares ISA, create an online Saga account using your date of birth, phone number and email address.
2. Select a portfolio: Once you've set up your account, you can choose from three investment portfolios: Cautious, Balanced or Adventurous. Select the one that best suits your circumstances and goals.
3. Confirm your investment: Decide whether to invest a £100 lump sum, set up regular £100 payments, and/or transfer funds from another ISA. After necessary checks, your Saga Stocks and Shares ISA will be up and running.

Designed by HUB Financial Solutions, the portfolios give you the opportunity to invest in a number of funds which hold a wide range of different types of assets across UK and international markets. 

Before applying, it’s essential that you fully understand Stocks and Shares ISAs and the risks involved. Start by reading our important information about investing.