What is a Stocks & Shares ISA?

Your guide to the Stocks & Shares ISA

Stocks & Shares ISAs are a type of Individual Savings Account (ISA). They’re different to Cash ISAs and ‘normal’ savings accounts because you invest your money rather than saving it in an account with a savings rate. Here, we explain how a Stocks & Shares ISA works.

If you want to invest your money but aren’t sure how to get started, then investing in a CIRCA5000 Stocks & Shares ISA could be a great option.

So, how does a Stocks & Shares ISA work, and how does it fit into your overall ISA allowance?

What is an ISA?

Let’s start with what an ISA actually is.

Standing for an “Individual Savings Account”, these types of personal savings accounts help you save money tax-efficiently. You can save or invest up to the set ISA allowance (currently, £20,000) tax-free for each tax year. Meaning you won’t pay tax on the gains you make on the money invested in the account. Most ISAs are open to UK residents aged 18 and over.

The Junior ISA has a different allowance and can be opened by parents or guardians on behalf of a child under the age of 18.

ISAs are special because of their tax-efficient benefits, and there are five main types of ISA:

  • Cash ISA
  • Stocks and Shares ISA
  • Lifetime ISA (LISA)
  • Innovative Finance ISA
  • Junior ISA (JISA)

It’s up to you whether you put your full £20,000 allowance into one type of ISA or split it between different types of ISAs. For example, you could have a Cash ISA with £10,000 and a Stocks & Shares ISA with £10,000 in the same tax year, which would keep you within the £20,000 annual allowance. Note that you cannot open two of the same types of ISA in the same year. For example, you could not open two Stocks & Shares ISAs and contribute to both of them.

Examples of ISA allowances in a single tax year
You can put your full £20,000 allowance into one type of ISA or split it between different types of ISAs

What is a Stocks & Shares ISA?

A Stocks & Shares ISA (also known as an “Investment ISA”) lets you invest in individual stocks and shares, company and government bonds.

Stocks and shares
  • Stocks and shares: Buying a stake or “share” in a company. Companies sell ‘shares’ of their companies to fund the growth of their business growth. These shares are bought and sold on stock markets around the world. The CIRCA5000 Stocks & Shares ISA is made up of 6 funds. For example, the Clean Water fund is made up of 54 companies strengthening the water management system at every step of the cycle. The higher your risk level, the more stocks and shares you will hold in your portfolio. The higher your risk level, the more stocks and shares you will hold in your portfolio.
  • Bonds: These can be government or corporate bonds, which involve loaning your money to governments or companies. You can think of a bond as an ‘IOU’ — you are loaning a government or corporation money, and they are promising to pay you back in a set number of years, paying you interest along the way. The lower your risk level, the more bonds you will hold in your portfolio.
  • Cash: A small portion of a Stocks & Shares ISA is usually held in cash. This is because cash can help to reduce the risk of your portfolio. For example, in a lower-risk portfolio, cash can reduce the size of changes in your balance when stocks and shares or bonds go up and down. We also take our fees from this portion of cash, so we don’t need to sell down any investments to pay for our management fee.

Stocks & Shares ISAs work similarly to other ISAs, with an annual allowance of £20,000 (i.e. you can pay in a maximum of £20,000 every tax year). Within this allowance, you don’t have to pay any capital gains tax or income tax on your earnings. This makes a Stocks & Shares ISA a nice tax-efficient investment account.

A Stocks & Shares ISA differs from a Cash ISA because you’re investing your money rather than just saving it. It's important to note that the value of your investments can rise and fall ⁠— and you might not get back what you invest. This means Stocks & Shares ISAs come with more risk than some of the other savings products out there.

However, Stocks & Shares ISAs almost always offer higher returns than Cash ISAs over the long term. So if you’re saving over the longer term, they can bring about positive returns on your money, depending on your risk level. Remember, past performance isn't an indicator of future returns.

How do Stocks & Shares ISAs work?

Stocks & Shares ISAs are best used for medium to long-term investments. Most experts recommend investing your money for at least 3-5 years.

Instead of fixed interest rates, a Stocks & Shares ISA earns you money when your ISA investments increase. If the companies you’ve invested in do well, the value of your account goes up.

When it comes to choosing where to invest your money when using a Stocks & Shares ISA, your main choice is between investing in pre-existing funds or buying your own shares:

  • Investing in funds: Some stocks & Shares are “ready-made” which means your provider chooses a selection of investments, and you build your portfolio based on those available options. Building a portfolio from a set of funds usually helps people to spread investments (and therefore spread the risk) across lots of different investments (and countries)⁠— for instance, shares, bonds and cash. Investing in funds can be an opportunity to invest sustainably. For example, at CIRCA5000, we exclusively offer funds that only include companies with a core mission to do good for society and the environment. So you can be comfortable knowing that however you choose to build your portfolio with CIRCA5000, you won’t be investing in any companies that are involved in harmful activities.
  • Buying your own shares: Self-investment providers enable a more “DIY” approach, with access to the full range of investments, including stocks, shares and funds. It’s up to you to make your own investment decisions.

At CIRCA5000, we offer the opportunity to invest in a select number of funds, ranging from Clean Energy, Sustainable Food to Education and Healthcare.

What is the best Stocks & Shares ISA for me?

If you’re wondering which Stocks & Shares ISA is best for you, you’ll want a good understanding of Stocks and Shares ISA rules. As well as the benefits on offer, it’s important to consider costs, risks, returns and rules about withdrawing your money.

Account fees

Stocks & Shares ISA providers have various fees and charges for their services. These could include:

  • Platform and subscription fees: A charge for holding an account and using the investment platform. This might be a percentage of your investments or a flat fee. At CIRCA5000, the platform fee is a flat fee of 0.45% and a subscription fee of £1 per month. The subscription fee remains the same, no matter how many accounts you hold with CIRCA5000.
  • Fund management charges: The amount a fund manager charges for looking after your investments. Usually, an annual fee. This will depend on the funds you choose to invest in; at CIRCA5000, this will range between 0.45% and 0.65%.
  • Buying and selling charges: If you’re self-investing, you might pay a “trading fee” every time you buy and sell individual shares on a platform. This could be a flat fee or a percentage of transactions. There are no trading fees at CIRCA5000.
  • Transfer out fees: A charge for moving your existing ISA to a new ISA provider. All companies and funds must allow transfers out to a different provider.

At CIRCA5000, we only charge a £1 monthly subscription and an annual 0.45% online platform fee. With our clear and transparent fees, there aren't any extra trading or admin charges. We also offer free transfers and withdrawals, so you won’t face any surprises along the way.

Safety and risk levels

The value of your investments can go down and up with this type of ISA., so it’s important to consider what risk level you’re comfortable with.

It is also important to check whether you are protected if the firm you are invested with fails. CIRCA5000 has been approved by the Financial Services Compensation Scheme, which means your money is protected up to £85,000. Note that the FSCS protection does not apply when the value of your investments goes down; it only protects the money in your investment account should the firm you are invested with no longer operate.

Potential returns

Opening a Stocks & Shares ISA isn’t that dissimilar to opening a 'standard' savings account. It’s always a good idea to compare deals and providers.

The main difference is you’re not looking at interest rates, though. Instead, you’re thinking about the potential growth of your investments.

As a result, considering your investment options is key. Does your provider’s approach align with your ethics and personal goals?

You should also look at any forecasted returns on your investments. Resources such as The Times Money Mentor and past performance comparison tables are good places to start your research.

Withdrawing your money

It’s vital to check the rules on withdrawing money from a Stocks & Shares ISA when choosing an account. If something happens out of the blue, you might need some money back.

Each provider has their own terms and conditions on withdrawals. So read these carefully.

For example, you might have to give some providers 6 months' notice before withdrawing your funds. Others might require you to invest your money for a set period of 2, 3 or 5 years. On the other hand, some offer instant access to your investments within 2 or 3 working days.

At CIRCA5000, you can withdraw from our Stocks & Shares ISA for free at any time. As always, it’s worth remembering that Stocks & Shares ISAs should be seen as medium, to long-term investments, so it’s worth considering how urgently you need the money if withdrawing in the short term.

Keeping this in mind, building a cash savings fund before opening a Stocks & Shares ISA is a good idea. This will avoid having to dip into your investments and losing out on any returns.

Can I open a Stocks and Shares ISA for my child?

Yes! If you want to open a Stocks and Shares ISA for someone under 18, Junior Stocks and Shares ISAs (JISAs) are a great way to do this. To open an account, you must be a parent or legal guardian.

There are two types of JISA on the market.

These are Cash JISAs and Stocks and Shares JISAs. They work similarly to 'adult' accounts. The main difference is the current limit per tax year is £9,000.

Your child cannot access the money in their JISA account until they turn 18 when they can legally access their account. Before they turn 18, no withdrawals are allowed, and transfers are only possible to other Junior ISA providers. When the child turns 18, they can withdraw money from their Junior ISA.

Can I have more than one Stocks & Shares ISA?

You can only pay into one Stocks & Shares ISA per tax year. However, you could open and pay into a Cash ISA in the same tax year as paying into a Stocks & Shares ISA if you split your £20,000 allowance across the two accounts in the same year. In theory, you could open a new Stocks and Shares ISA each tax year. The tax year for ISAs runs from the 6th of April to the 5th of April every year.

Summary: Stocks & Shares ISA

Stocks & Shares ISAs are a great tax-efficient way of investing and saving for your future. And they have the potential to bring you higher returns than a standard Cash ISA. There are also many different ways to invest your money through a Stocks & Shares ISA. If investing in a sustainable way is important to you, then a CIRCA5000 Stocks & Shares ISA may be for you.

Remember: the value of your investments can go down and up, which could mean you get back less than you put in. For this reason, Stocks  & Shares ISAs are best as medium or longer-term investments. Over this kind of timeline, there’s a very good chance you’ll be able to navigate the peaks and troughs of the stock market and come out on top.

It is also worth having a rainy day fund of savings of around 3-6 months' worth of your salary so that you don’t have to dip into your ISA when the timing isn’t right.

​​When you invest, your capital is at risk. You should consider whether opening a CIRCA5000 ISA or transferring your ISA is right for you. Please note that tax rules and reliefs may change depending on your circumstances. CIRCA5000 does not provide any financial or tax advice, and you are responsible for your own tax reliefs/payments. This article does not represent financial advice.

Important information - Investments can go down in value as well as up, so you can get back less than you invest. The information on this page isn't investment advice. If you're not sure if an investment is right for you, please seek advice. Tax rules can change and depend on individual circumstances.