How do I find the best stocks and shares Isa?
A stocks and shares Isa isn't an investment itself - it's a type of account in which you can can buy almost any combination of investments, with tax-free returns.
Here, we reveal the best places to get a stocks and shares Isa - including our Which? Recommended Providers and cheapest investment platforms.
And our two-minute video explains how to find the best stocks and shares Isa for you.
Have you used up your Isa allowance?
Your Isa allowance for the 2020-21 tax year is £20,000. Any contributions you make to a cash Isa also come out of your allowance.
It's also important to remember that you can only open one cash Isa and one stocks and shares Isa in each tax year, although you can have more than one of each type in total if you've opened them in different tax years.
If you want to change provider and then make additional contributions, you will need to transfer your Isa first.
- Find out more: How to find the best cash Isa
Do you understand the risks of stocks and shares Isas?
Investing isn't for everyone and, before you commit to a stocks and shares Isa, it's crucial that you have an understanding of all the risks involved.
Your attitude to risk will determine how you approach most other questions you'll face when negotiating your options.
- Find out more: Understanding investment risk
Who are the best stocks and shares Isa providers?
To find the best investment platforms, Which? asked their customers.
We scored platforms on their online tools, customer service, investment information, investment options and value for money. Combined with expert analysis of pricing, we picked two Which? Recommended Providers for 2020-21.
Which? members can exclusively read the results of our unique customer satisfaction survey, including Which? Recommended Providers and individual platform reviews.
What makes a Which? Recommended Provider?
To qualify as a Which? Recommended Provider (WRP), a platform must have received at least a 70% customer rating, and not received below-average scores on any of the underlying criteria.
But as costs are a guaranteed drag on your investment portfolio, recommended providers mustn’t be in top three platforms for costs, based on any portfolio size we reviewed.
Who are the cheapest stocks and shares Isa providers?
The differences in costs between investment platforms can be substantial and add up to hundreds of pounds per year.
Some platforms charge a percentage fee, based on the size of your portfolio, others charge flat fees and some platform charge a combination of both.
In general, percentage-based charges suit smaller portfolios (under £50,000) and flat fees suit larger portfolios. If you frequently buy and sell investments you should pick a platform that charges low or no fees for trading.
Which? members can exclusively read our detailed comparison of leading investment platform costs, with suitability ratings for eight different sizes of portfolio.
How do I build a high-performing stocks and shares Isa?
Unlike cash Isas, returns are never guaranteed with stocks and shares Isas. However you can give your investments the best chance of succeeding by considering the following:
Your risk appetite
Ultimately, the higher the return promised for a particular investment, the higher the risks involved.
Before investing you should be confident in your 'risk appetite; i.e. how much money you're prepared to lose in a worst-case scenario.
Your risk appetite should also reflect how long you have to invest. Investing for the longer term gives more volatile investments time to bounce back; if you need the money for less than five years you're better off using a savings account.
Lump sum or regular contributions?
Investing a lump sum in one go will get your money working from you and give it longer to grow.
However, making regular contributions means your investment will benefit from 'pound cost averaging'.
If the value of your investments fall, you’ll be able to buy up more units for the same price next month. With more units, you’ll be well-placed to benefit should the value of investments rise again. It’s also less risky to contribute regularly, since less of your money would be affected were your investments to shrink.
You guard against risk by diversifying what you invest in.
That means having a range of assets, based in different regions and ideally held with different fund managers.
Also consider that the protection from platform collapse offered by the Financial Services Compensation Scheme only applies to £85,000 of investments per platform - if you're holding more in one stocks and shares Isa you should consider moving some into another Isa.
We've put together some model investment portfolios to help you get started.
Shares, funds or trusts?
Investing doesn't require you to pick out individual company shares any more.
Investment funds (sometimes called unit trusts or OEICs) allow you to invest in thousands of companies across the world for an (increasingly small) fee.
Some investment platforms even offer ready-made blended funds for particularly risk appetites.
Stocks and shares Isas can also hold investment trusts, corporate or government bonds (gilts) and life insurance policies.
If you're buying funds, keep an eye on fees.
Active funds, where a fund manager picks out individual investments, tend to have higher fees, without guaranteeing higher returns.
Passive (sometimes called tracker) funds follow an index, such as the FTSE 100, and invest in all, or a representative share of those companies. They tend to be lower cost. You can read more about them here.
How do I review my stocks and shares Isa?
Once you've set up your stocks and shares Isa, it can be tempting to constantly check in on its performance - particularly now many investment platforms offer mobile apps.
The danger with doing this is that you will be drawn into tinkering with your portfolio.
If your original portfolio is set up on a sound basis, you should aim to leave it for the long term, with annual reviews the sensible way to reassess and make sure your investments haven't strayed too far from your desired asset allocation, rebalancing if necessary.
This is what a financial adviser would do for you, after all.
If you deal too often, you risk ending up with a list of random investments rather than a carefully considered portfolio.
Can I transfer an existing stocks and shares Isa?
Yes, although you should look out for 'transfer out' fees from your current provider.
If you decide that another provider suits your needs, you can transfer previous years' investments into the one account - making it easier to monitor and administer your investments.
This can take a few weeks and can, in some cases, require selling investments in order to move your money.
- Find out more: Step-by-step guide to stocks and shares Isa transfers