While cash ISAs continue to offer poor interest rates, you could consider using your allowance in a stocks and shares ISA instead. Here's how to get started.
Investment ISAs put your capital at risk, and you may get back less than you originally invested.
It is a stocks and shares investment you make tax efficient by using your ISA allowance.
A cash ISA is a deposit based savings account which uses your ISA allowance to cut out interest tax.
Your money is kept by the bank or building society where your cash ISA is held, and it isn't used to invest in funds or companies.
You can get various types of cash ISA, from instant access to ISA bonds which tie your money up for several years.
You can compare cash ISAs here.
You can open an investment ISA with a fixed sum of money, e.g. £15,000.
This may suit you if you have money earning little interest elsewhere, and you want to move it somewhere that could give you a better return.
Most investment brokers let you open an investment ISA with a nominal amount, e.g. £50, then add to it monthly.
This may suit you if you prefer to invest a little each month, rather than investing all your money at once.
Your money buys units in whichever fund you have chosen, or the broker has selected on your behalf.
The number of units you get will depend on how much each unit is worth at the time you invest. For example:
If one month you invest £50, and the unit price drops, you will buy more units. If the value of the units increases in the future, you will have made a profit on them.
If the next month the unit price has increased, your investment will buy fewer units. If the unit price drops the following month, those units will have dropped in value.
Whether you choose to invest monthly, or a lump sum, your money can go up and down often, so only invest what you can afford to lose.
When looking for an investment ISA to invest in, you can:
Choose the funds yourself: this may suit you if you have knowledge of financial markets.
Select funds chosen by a broker: this may suit you if you have little financial market knowledge, but know the level of risk you want to take.
There are also fees to consider when investing your ISA. This can vary by broker, but common fees include annual management costs and withdrawal fees.
Investing is not something you should consider if you want a quick return on your money.
It is typically used if you want to see returns over a term of 5 years or more, as stock market prices can go up and down constantly.
Whether you choose to invest in funds chosen by yourself, or through a broker who selects them on your behalf, make sure you understand the risks.