What is a stocks and shares ISA?

A stocks and shares ISA (individual savings account), sometimes known as an investment ISA, is a tax-efficient investment account. This means that you don’t have to pay Income Tax or Capital Gains Tax on any profits you make on your investment. 

Unlike a cash ISA, you can invest your money in stocks, funds, bonds, and other assets. This gives your money more potential to grow over the long-term, but it also comes with some risk. The value of your investments can fall as well as rise and you may not get back what you put in.

Discover more about our stocks and shares ISA

How does a stocks and shares ISA work?

Stocks and shares ISAs allow you to invest your money over the medium to long-term, with the aim of growing your money. This is different to a cash ISA as you are not guaranteed an interest rate, but there is more potential for growth if you are comfortable with the risk that you may not get your full investment back. 

Each year you have an annual ISA allowance that is set by the Government, which is the limit that you can save or invest into ISAs each tax year. In the 2024/25 tax year the annual ISA allowance is £20,000. 

Explore how our Stocks & Shares ISA works in this video:

Where can you choose to invest with a stocks and shares ISA?

You can choose to invest in ISAs with different investment styles, so you should check that you are choosing an ISA that suits your needs. Different ISA providers will give you different options, but the main ways you can invest are to either do your own research and invest in individual shares, or to invest into ready-made investment funds. 

Investing in individual stocks and shares

If you choose to do your own research, then some providers allow you to buy and sell specific shares of your choice. When you do this, you’re essentially the owner of a portion of an individual company. However, you should be aware that there is an increased risk to choosing to invest in an individual or small number of companies, which is due to your investment’s performance being more reliant on a smaller number of companies performing well. 

Investing in ready-made funds  

Investing in ready-made funds is an easier way to invest your money in a wider range of companies, which are often chosen by investment managers. When you do this, your money is more likely to be spread across a range of companies in different sectors, as well as other types of investments such as property and bonds. This can help you to spread your risk but will not eliminate it completely. Depending on the provider, you may be able to choose to invest in specific funds or a ready-made fund portfolio. 

At Shepherds Friendly, we believe in the power of simplicity so give members the choice of two ready-made funds. We offer one fund which invests in a broad range of companies, and another that specifically invests in companies that are leading the way in sustainability. 

You can learn about how we invest our members’ money in our video on with-profits investing.

How to invest in a stocks and shares ISA

Investing in a stocks and shares ISA can be quick and simple and it should take you about 10 minutes to complete an application. Before you open a stocks and shares ISA it’s important to ensure you are eligible. To invest in a stocks and shares ISA account you must: 

• Be aged 18+  
• Be a UK resident (excluding the Isle of Man and Channel Islands).  
• Have access to your National Insurance number 
• Have not already exceeded your annual ISA allowance of £20,000

Can you open more than one stocks and shares ISA?

You can open ISAs with more than one provider within the tax year, providing you don’t exceed the maximum annual allowance across all the ISAs you hold. The current maximum allowance for the 2024/25 tax year is £20,000. The ISAs you hold can all be the same type or you can choose a mixture of ISAs that you’re eligible for in a given tax year. It is important you check your eligibility for each type of ISA, and remember, you can only pay into one Lifetime ISA in a single tax year (up to £4,000).

The four types of ISA’s you can invest in are:
• Stocks and shares ISAs
• Lifetime ISAs
• Cash ISAs
• Innovative finance ISAs

You can also save or invest for your child’s future separately in a Junior ISA. The current Junior ISA allowance is £9,000 and the child will receive the lump sum when they turn 18.

Is a stocks and shares ISA worth it?

A stocks and shares ISA could be an ideal way to help fund your future and achieve your medium to long-term goals. There are many benefits, such as: 

• You can shelter your investment growth from tax – You won’t pay any tax on investment growth and can add up to £20,000 this tax year.  
• There are different stocks and shares ISAs to suit different needs –   You can choose to invest in a stocks and shares ISA that gives you more control over the specific shares you invest in, or one that allows you to invest in ready-made funds which are managed on your behalf.  You should research which type is best for your needs. 
• You have the potential to earn more than a cash ISA –  Investing gives you more potential for growth than a cash ISA. However, it should also be seen as a medium to long-term activity to help mitigate risk, as investments can go down as well as up. 

Take the first step in your investment journey today and start your stocks and shares ISA application. 

Be sure to read through our Important Information Guides for all the key information about our Stocks and Shares ISA and Sustainable Stocks and Shares ISA. Remember that when you invest, your capital is at risk.