Putting a little money aside for a rainy day makes sense but with interest rates in the doldrums that can be easier said than done. With many cash ISAs failing to match the basic rate of inflation, a stocks and shares ISA might be a better bet. So how do you choose the right one for you?
A stocks and shares ISA is basically just an account in which you trade shares, but it is tucked within the package of an ISA to help you take advantage of a tax free allowance. There’s a growing list of providers out there, but which one you choose will depend on all sorts of factors such as:
- Risk: Any investment comes with a degree of risk and while a cash ISA will probably come from a big bank you’re already familiar with a stocks and shares ISA may be offered from a company you’ve never heard of. Different Stocks and Shares ISA accounts will also offer varying levels of risk. Those with higher risk profiles, you might assume, would offer a higher rate of return although that is not always the case.
- How you want to invest: You can choose to invest in two ways – either with a lump sum investment or by drip feeding funds into your account.
- Fees: Different providers may levy different fees. Some will be more transparent than others and may vary depending on the size of the fund or how actively it is managed. Different providers will also adopt their own attitudes to transferring funds from existing ISAs. Some will allow this free of charge, others may levy a fee or have limits on how much you can transfer.
- Active or passive: An active fund will see a manager pick stocks and shares according to his or her own investment strategy. The problem is, there’s no guarantee that your manager can beat the market and they also take higher fees. A passive fund which tracks an index, meanwhile, will mirror the market. Fees will be slightly lower, so this might feel like a safer and less expensive option.
These, then, are just a few of the options for comparing a stocks and shares ISA. For a bit more reassurance, you might also decide to use a financial advisor. This may be expensive, but depending on the person you go with, it could help you find the best option for your own circumstances. However, if you do decide to go it alone, these are the key questions you should ask yourself before you get started.