ISA savers’ top five questions have been answered. (Image: Getty)
As the new tax year begins savers and investors are turning to Google for guidance with their tax-free ISA allowance.
Online searches have jumped by almost a third to 5.4million in the last year, as confusion persists around how ISAs work and how to get the best from them, said Antonia Medlicott, managing director of Investing Insiders. She tackles the top five questions people are asking online.
Is a Stocks and Shares ISA worth it? This is the most common question of all. Equities are riskier than cash in the short run, Medlicott said, but should be more rewarding over time. “In the last 10 years, money held in Stocks and Shares ISAs has returned around 9.5%, comfortably outperforming Cash ISAs, which averaged 4%.”
Those who invested £10,000 and paid in a further £50 a month would get £34,592 from a Stocks and Shares ISA, against £22,161 from a Cash ISA. Over time, the gap widens, but older savers may prefer the comfort of cash.
How do I invest with an ISA? Medlicott said beginners should keep it simple and do their homework first. “Start by researching Stocks and Shares ISA providers online to see which platform is best suited for you.”
AJ Bell, Bestinvest, Hargreaves Lansdown and Interactive Investor are popular, but compare fees and charges.
Think long term before investing in shares, she added. “Only invest if you’re happy putting money away for a minimum of five years, as the stock market investments are designed to be left for long-term growth.”
For those nervous about making the wrong call, ISA platforms may offer managed portfolios to take the decision-making out of your hands.
Can I transfer an ISA? Done correctly, transferring from one provider to another should be pretty straightforward, and could bag you a higher interest rate or cheaper fees.
However, don’t simply withdraw your funds, as doing so would mean they lose their ISA tax advantages, Medlicott warned. “Contact the provider you want to join and get them to request the transfer. They will handle the rest. In some cases, it may be possible to transfer ‘in specie’, without selling your investments first.”
Can I withdraw money from my ISA? Some people wrongly think their ISA money is locked away, but it depends on the type of ISA. “A Junior ISA can’t be touched until children turn 18, and a Lifetime ISA can only be used to purchase a first home or after turning 60, otherwise there’s a 25% penalty.”
Otherwise, most standard Cash ISAs and Stocks and Shares ISAs allow you to withdraw your money as you please. “However, if this is a fixed-term account, there will be an early exit charge, set by the provider.”
Unless you have a flexible ISA, once you take that money out, it cannot be put back in without counting against that year’s £20,000 allowance.
Can I have a joint ISA account? Medlicott said ISAs belong to the individual, so you can’t have a joint account. “If you want to split money as a couple, you can each open an account with the same provider and follow the same strategy.”
Medlicott also urged caution when relying on online tools such as ChatGPT for financial decisions. “It’s fine to use it for initial insights, but for major decisions, consider professional advice.”