Best and cheapest investment ISAs for beginners

10 min Read Published: 03 Apr 2024
Best and cheapest investment ISAs for beginners.
Best and cheapest investment ISAs for beginners

Beginners guide to Stocks & Shares ISAs

This article is a simple jargon-free guide to the best Stocks and Shares ISAs for beginners in the UK. In this article you will learn how Stocks and Shares ISAs work and even how to get started and what to invest in. I suggest you read the full article to make sure you don't miss anything however you can jump to relevant sections using the hyperlinks below:

What is a Stocks and Shares ISA?

Think of a Stocks and Shares ISA like a box that you can put investments in. Any investment or asset that you put into this box can grow and/or produce income tax-free (with one or two small exceptions). Anything you take out of the box is also tax-free. Stocks and Shares ISAs exist because the Government wants to encourage you to save and invest for the future or for your retirement. However, they put an annual limit on how much money you can pay into a Stocks and Shares ISA which I cover in the section titled Investment ISA limits.

You can invest in a whole range of assets via an investment ISA such as:

  • Cash (this is known as a cash ISA)
  • Shares
  • Bonds
  • Funds (including unit trusts, investment trusts and exchange traded funds (ETFs))

Funds are collective investments that pool the money from millions of investors in order to benefit from the economies of scale. So a fund may, for example, invest in UK company shares. The fund is run by a computer or a fund manager in accordance with a stated investment mandate. By choosing to invest your money in a fund you share in the profits (and losses) the fund makes. You can invest in any number of the 3,000 or so funds that are out there, which cover a range of asset types, to produce the best Stocks and Shares ISA portfolio. The key is to hold funds covering a wide range of assets and countries (i.e. shares, property bonds etc) to diversify and reduce the risk of losing money. Later in this article, I share a tool that can help suggest the types of assets you could invest in.

How do investment ISAs work

If I extend the analogy used earlier, then, generally speaking, an Investment ISA is simply an empty box. It’s up to you to decide what to put in that box (i.e. what funds to invest in). However, the advent of online investment ISAs has meant that there are now some ‘off the shelf’ investment ISAs which take care of the investment decisions for you and run your money.

So let’s assume that an investment beginner is someone who has no prior knowledge or experience of investing. These investors understandably still want to see good investment performance, with risks being managed at a cheap cost. Until very recently that often meant simply investing in a tracker fund which just mirrors the movement of a market index like the FTSE 100.

Investment ISA limits

Stocks and Shares ISAs offer such attractive tax advantages the Government sets an annual ISA allowance which is the maximum an individual can save into an ISA during a given tax year. This Stocks and Shares ISA allowance changes from year to year. For the 2024/25 tax year, the annual Stocks and Shares ISA allowance is £20,000. Don’t forget the tax year runs from 6th April to the following 5th April. If you use your Stocks and Shares ISA allowance every year you can quickly build up a sizeable ISA portfolio. In fact, there are some people who have used their Stocks and Shares ISA allowance each tax year and now have over £1 million invested tax-free.

In a given tax year you can open a Cash ISA, Stocks and Shares ISA and what is known as an innovative finance ISA (which gives you access to peer-to-peer savings) but the total must be less than the current year's ISA allowance. Another option is the Lifetime ISA. This type of ISA is only available to people under 40 and has its own annual contribution limit. The Lifetime ISA allowance is £4,000 a year and does count towards your overall ISA allowance of £20,000. The aim of the Lifetime ISA is to help young people invest for a house or retirement as the Government provides a 25% bonus on the amount saved into a Lifetime ISA. So if you invest £4,000 the Government would top this up by £1,000. Contributions can be made until the age of 50 and still receive the bonus.

Investment ISA limits summary:

  • £20,000 limit for 2024/25 tax year
  • Tax year runs from 6th April to the following 5th April
  • You can open a Cash ISA, Stocks and Shares ISA or innovative finance ISA however the total invested across each must be £20,000 or less
  • Another option is a Lifetime ISA where you can invest up to £4,000 per year and get a 25% bonus from the government

Investment ISA charges and fees

Whether you are a beginner or an experienced investor it is important to keep costs to a minimum as they eat into your eventual investment ISA returns. The charges you pay will depend on the type of investment ISA you choose. If you choose an ‘off the shelf’ investment ISA, where someone else invests the money for you, then there will be a management fee plus a fee for the underlying investments.

If you choose to go down the full DIY investment ISA route you will need to pick a broker (also known as a fund platform or fund supermarket) and then the investments to invest in (funds, shares etc). You will need to pay a charge to the platform for administering your investment ISA (a platform fee) and in addition, you'll pay a charge for the underlying funds that you invest in. This latter charge is normally called the fund management charge. All of these charges are usually expressed as a percentage of the amount you invest. So the more you invest the higher the charge in pounds and pence. Overall the total cost can be about 1.5% but you can get it as low as 0.15% (see later).

Ultimately the cost will also depend on the types of investments you choose. Often investing and trading investment trusts can incur additional costs. In addition, there can be exit fees should you decide to transfer your stocks and shares ISA elsewhere.

Transferring ISAs

When it comes to transferring a Stocks and Shares ISA there are two things to consider:

  1. Transfer charges - Does any investment ISA you are considering have transfer charges if you decide to move your money elsewhere? The best Stocks and Shares ISAs for beginners won’t have excessive transfer penalties (also known as exit penalties). That’s because the best investment ISA for a beginner may no longer suit an investor in the future should the investor want to take more control of how their money is invested and choose the ISA funds themselves. As their experience grows they could transfer their money to a Stocks and Shares ISA that offers more control, such as an investment platform.
  2. Transfer your ISA (don't withdraw and re-invest) - It is worth noting that it is better to transfer an ISA than encasing or withdrawing your Stocks and Shares ISA and opening a new account elsewhere. That’s because by withdrawing the money it loses its ISA status and any subsequent reinvestment is deemed to be new and is set against your ISA allowance for that year. By transferring from one Stocks and Shares ISA provider to another directly you can maintain the tax-exempt status and not affect your annual ISA allowance for the current tax year. Your intended destination ISA provider produces the relevant forms required to enact a transfer. You can transfer all or part of a previous tax year’s Stocks and Shares ISA but you can only transfer the whole of any Stocks and Shares ISA from the current tax year. Additionally, you can now transfer a cash ISA into a Stocks and Shares ISA and vice versa, which you couldn’t do previously.

Where should you invest your ISA allowance?

If you are looking for someone to invest your money for you then you are simply looking for which Stocks and Shares ISA product to invest in. I cover this in the section below, the Best Stocks and Shares ISA for beginners.

However, if you want to invest your money yourself then you need to decide three things:

  1. What to invest in (this is known as asset allocation)
  2. Which funds to invest in to build a portfolio
  3. The best and cheapest Stocks and Shares ISA platform to put your plan into place.

What and where to invest in is the biggest hurdle facing novice investors. How much do you invest in UK equities, US equities, bonds, property etc? The answer depends on your age and your attitude to risk. So the older you are the more you should invest in ‘safer’ assets such as bonds, cash and property. The younger you are the more you can invest in riskier assets such as equities (also called shares) because you have more time to recover from any losses.

However, if you are risk-averse then your asset mix would still look different to someone of the same age as you who prefers higher investment risk. So we developed a free investment asset allocation calculator that gives you an example portfolio based upon your stated age and attitude to risk. This is not a personalised recommendation or advice.

Best stocks and shares ISA for UK beginners

Best managed investment ISA for beginners

For those wanting to have a professional invest their ISA allowance for them and make strategic decisions then Wealthify is certainly worth consideration, especially as it has a minimum of just £1 meaning you can start small. I carried out a full independent review of the Wealthify Stocks and Shares ISA which you can read in full.

In summary, Wealthify offers a simple, hassle-free investment solution which is extremely cost-effective. It invests in a range of assets, offering five different portfolios which you can select based on your appetite to risk. Wealthify charges a platform fee of 0.60% and average fund fees of around 0.16%, which compares favourably against the industry standard fund charge of around 1.5% a year. Wealthify is able to do this because it invests in something called exchange traded funds (ETFs) which puts the Wealthify ISA among the cheapest Stocks and Shares ISAs and the cheapest of all of the robo-adviser services when investing less than £50,000. In addition, Wealthify's investment performance has been good, check out our article 'Which is the best performing Stocks and Shares ISA' for more information. You can register for free with Wealthify, building a Wealthify investment portfolio in seconds online, which you can look at with no obligation to buy.

If you want to invest in a simple tracker fund, rather than have someone manage your money for you, then Vanguard Investor allows you to invest in Vanguard's range of tracker funds and ETFs with a platform fee of just 0.15% (capped at £375 per year). Read my full Vanguard review for more details.

Best investment platforms for beginners in the UK

If you plan to manage your own money then you need to choose an investment platform in which to manage your investments. When choosing a suitable platform cost is important but it’s not the only factor to consider. Fund availability, level of customer service, technology, reporting, tools and investment help all form part of the mix which is why Hargreaves Lansdown* continues to win industry awards despite not necessarily being the cheapest. It represents good value for your Stocks and Shares ISA when you consider all the aforementioned factors. Pleasingly, Hargreaves Lansdown has decided to scrap exit fees, which was one of the negatives when we compared investment platforms for beginners prior to the change. This means you can easily move your money to another platform should you wish to transfer elsewhere. The Hargreaves Lansdown’s platform is used by novice and seasoned professionals alike and so in reality, it is unlikely that you'll choose to move to another platform.

Another consideration is Interactive Investor*, a platform that operates a fixed-fee structure. Beginner investors start on the Investor Essentials service plan charged at just £4.99 per month effectively meaning the more you invest, the cheaper it becomes. Once you have over £50,000 invested, you'll be upgraded to the Investor plan at £11.99 per month. Read our Interactive Investor review for more information on the services and tools on offer.

Cheapest Stocks and Shares ISA

If you are simply looking for the cheapest Stocks and Shares ISA then you can read my full analysis of the Best and Cheapest Stocks and Shares ISA.

Best investment app in the UK for beginners

If it is simplicity that you are after then you may want to consider investing via a mobile app. In our article 'Best investing apps in the UK: How to invest from your mobile' we compare the best investing apps and highlight the pros and cons of each

Best performing Stocks and Shares ISA

If you are wanting to invest in a managed Stocks and Shares ISA which is run by a professional then read my Wealthify review, whose performance has been impressive. It may also be worth looking at our article 'Which is the best performing Stocks and Shares ISA?' where we compare the performance of a number of robo-advisers, looking particularly at 2021, 2022 and 2023. In this article, we also compare the performance and charges of two other leading managed Stocks and Shares ISA’s including Moneyfarm and Nutmeg.

Best performing ISA funds to invest in now

If you are looking to choose the underlying investments yourself then as stated earlier a Stocks and Shares ISA is simply an empty box in which anything you put enjoys growth and income almost completely free of tax. Plus anything you withdraw from it is tax-free. Therefore the best performing Stocks and Shares ISA will be determined by what you put into it. Once you choose your platform you need to choose the best ISA funds to invest in. To help DIY investors find the best Stocks and Shares ISA funds I created 80-20 Investor.

80-20 Investor is a DIY investment service that helps empower investors (including novices) to run their own money and choose the funds to invest in by providing fund shortlists. I also teach them about investing in a jargon-free way and run a portfolio of £50,000 of my own money live on the site which has consistently outperformed the market. You can also read through the 80-20 Investor reviews from existing members and read my advice on how to get started. If you want to find out more I suggest you start with the 80-20 Investor FAQs.



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