A guide to Stocks and Shares ISAs

The huge levels of government borrowing in the UK in the wake of the credit crunch make it inevitable that taxes will rise in the years to come. This has made tax free Individual Savings Accounts (ISAs) even more attractive to savers and investors.

From the sixth of April, 2010, the amount of money that you can save or invest tax free in an ISA will rise from 7,200GBP to 10,200GBP. You can invest up to half of this allowance in a stocks and shares ISA, and up to half in a cash ISA.

A cash ISA is pretty similar to a standard savings account. The one major difference is that the interest on the account is not subject to taxation, so you can usually get a higher rate of interest. A stocks and shares ISA is different in that the money you put into it is invested in the stock market, and the value of your investment will rise and fall depending on the performance of the shares in your fund.

There is greater potential for profit from a stocks and shares ISA, but this comes with the risk that you will lose money. As a rule of thumb, you should never bet what you cannot afford to lose, and this is as true of the stock market as it is of the casino.

If you have any credit card debts, overdrafts, or other unsecured loans, it is a good idea to clear those first before you put any money into an investment scheme, as any profits from the scheme will be completely wiped out by the interest on those loans.

Before you invest in a stocks and shares ISA, you should ask yourself whether you will be likely to need this money in the next five years or so. If the answer is yes, then you should not consider it, as the charges involved in withdrawing funds from a stocks and shares ISA coupled with the volatility of the stock market make it unsuitable for this purpose.

A stocks and shares ISA is best thought of as a long term investment, rather than a rainy day fund. If you want to get good value from it, you should have some emergency money put away in an easy access savings account to prevent you from having to withdraw money from your ISA.

Unless you are an experienced investor, it is a very good idea to take advice from an independent financial advisor who is authorised by the Financial Services Authority before putting any money into the stock market.

Renato Loehrer has a stocks and shares ISA with Legal

Article Source: A guide to Stocks and Shares ISAs

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A guide to Stocks and Shares ISAs

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