What’s a stocks & shares ISA?
A stocks & shares ISA (also known as an investment ISA) is an account that holds investments rather than cash. But like a cash ISA, it has tax benefits, because generally you don’t have to pay income or capital gains tax on your returns (depending on your personal circumstances), unlike when you invest outside of an ISA.
Despite them both being called ISAs, a stocks & shares ISA is quite different from a cash ISA. With a cash ISA you’re guaranteed to get back what you put in, plus interest. With a stocks & shares ISA, you’re normally investing your money into an asset where the returns aren’t guaranteed, like funds, bonds or shares in listed companies. That means the value goes up and down and your capital is at risk, so you could get back less than you put in.
The benefit of a stocks & shares ISA is that, in the long-run, the return on your investment can be higher than interest earned with a cash ISA, as it can often beat inflation and you generally won’t have to pay any tax on these gains (depending on your personal circumstances). But this isn’t guaranteed and the value of investments can just as easily go down as well as up.
What are stocks and shares?
In the UK, the terms ‘stocks’ and ‘shares’ are often used interchangeably. It’s a complicated topic, but essentially owning shares in a company means you own a small part of that company.
A stocks & shares ISA is an account where you can hold shares in listed companies and other kinds of assets, like bonds (company debt) and funds (a basket of shares and bonds, put together by a fund manager).
The Monzo stocks & shares ISA allows you to invest only in these funds, which themselves hold a diverse range of shares and bonds.
What are bonds?
You might also hear the term ‘bonds’ in relation to stocks and shares ISAs. Bonds are a type of loan given to a company or government, where the company agrees to pay you back at a certain rate of interest/returns.
Bonds are lower risk than shares, because with shares there’s no guaranteed payback. If you choose a fund classed as lower risk, it’s likely to be made up of a greater proportion of bonds than shares.
Can I choose which companies I invest in with a stocks & shares ISA?
Yes – you can buy individual shares if you want to, or you can buy into a ‘fund’ which is a group of investments.
Investing in a fund is usually less risky than buying shares in one company, because your investment, and therefore the risk of losing your money, is spread across multiple companies, countries and industries.
Buying into a fund is also less work for you, as someone else does the monitoring, buying and selling of the shares on your behalf. At Monzo, our funds are managed by BlackRock (the world’s largest global fund manager) who look after everything for you, and let you choose from three risk options: careful, balanced or adventurous.
What types of funds are available?
There’s a huge variety of funds available depending on what you’re looking for.
When you buy a fund it’ll often be categorised as higher risk, balanced or lower risk, though all investments come with a degree of risk. It's important to always look out for information about the risks involved in making that investment. You can often find helpful details in documents like a Key Information Document (KID) or a Key Features Document before you make a decision.
Funds can be active or passive. Active funds are actively managed by a fund manager who chooses which investments to buy and sell as part of the fund. Passive funds, also known as index funds or tracker funds, are made up of stocks included in an index, such as the FTSE 100.
You can buy into funds which focus on specific areas. For example, tech or healthcare, or a particular region like the US or Europe.
Is a stocks & shares ISA right for my savings?
Stocks & shares ISAs could be a good option if you plan to invest over a long period of time (at least 5 years).
While stocks can be volatile in the short term, a long-term investment gives you the opportunity to ride out any dips in the market.
It’s a good idea to make sure you’ve paid off debts and have an emergency fund in place before investing.
Is my money safe in a stocks & shares ISA?
Putting your money in a stocks and shares ISA means you’re investing it, and investing your money always comes with a risk. The value of your investments can go down as well as up, and you could lose all your money.
If you take out an ISA with a UK provider, the money you deposit may be protected. But the protection you get (if any) varies by provider and how your money is saved or invested.
Whether your money’s eligible for protection will change depending on things like:
Who the provider is
How much you’re investing
What kind of investment it is
How and where the provider holds your investments
Before choosing an ISA provider, always check what they provide in terms of protection and make sure you’re comfortable with it.
The most common type of protection in the UK comes from the Financial Services Compensation Scheme (FSCS). The FSCS protects some investments up to a value of £85,000 for banks, building societies and credit unions, savings providers and investment firms that are authorised by the Prudential Regulation Authority or the Financial Conduct Authority. The £85,000 limit is per person, per bank or authorised firm, and the £85,000 limit on compensation for deposits and investments are separate.
If you’re considering a stocks & shares ISA, it’s important to note that protection doesn’t cover losses incurred due to investment performance, and some investment types aren’t covered at all.
For more information on FSCS protection, visit their website.
Can I have more than one stocks & shares ISA?
Yes, you can open as many stocks and shares ISAs as you like! However your yearly deposits mustn’t exceed the annual ISA allowance, which is currently £20,000 across all the ISAs you hold.
This isn't financial advice or personalised to you, and we're not recommending or suggesting you take any particular action. If you're in any doubt about what's right for you, then speak to an authorised financial advisor.
Tax treatment depends on individual circumstances and may change in the future.
The value of your investment can go up and down and you could get back less than you put in.
Ready to open a stocks & shares ISA? Check out our investments page.
You need a Monzo Current Account. Ts&Cs apply. 18+ and UK residents only.