Stocks and shares ISAs offer savers the prospect of inflation-beating tax-free returns over the long term. Another benefit of a Stocks and Shares ISA is that income, dividends and capital gains can be accrued free of tax within an investment ISA, so this type of account is very attractive for long-term investors, particularly those with capital gains in excess of £3,000 (the annual capital gains tax threshold).
We have put together a step-by-step guide on how to open a stocks and shares ISA online. It is worth noting that your ISA allowance is £20,000 for this tax year (2024/25) with the deadline being midnight on 5th April 2024.
How to open a Stocks and Shares ISA
How to open a stocks and shares ISA in 5 easy steps.
Step 1) How much do you want to invest?
The first step is to consider how much you would like to allocate to your new stocks and shares ISA. This year’s £20,000 tax-free allowance can be split between the following ISA accounts: stocks and shares, cash, lifetime and innovative finance. The rules around how many ISAs you can open and invest in each tax year have recently changed, read our article, 'Can I have more than one ISA?'.
Do you wish to allocate new money to a Stocks and Shares ISA? If so, make sure it is cash that is not required imminently and you are happy to invest it for the long-term (ideally a period of five years plus). The primary objective should be to achieve inflation-beating returns over time. However, the value of your investments can also go down, so be prepared for volatility along the way. If you need access to your cash within five years or aren’t comfortable with the value of your ISA falling then you should choose a Cash ISA vs a Stocks and Shares ISA. Our article 'Best savings accounts in the UK' details the best Cash ISA rates currently as well as the best rates on a variety of other types of savings products.
If you wish to consolidate ISAs that were set up during previous tax years, you will need to check if the provider accepts transfers in. If this is possible, the transfers will not count towards your annual allowance. If you decide to transfer an ISA that you have already paid into during the current tax year, you will have to transfer over the whole amount. Check out our article which explains the best way to transfer isa.
Step 2) Do it yourself or get someone in?
The next stage is to consider whether you would like to select and manage your investments via a fund supermarket. Alternatively, are you more comfortable having someone manage your ISA portfolio on your behalf?
If it is the latter, you might consider buying a pre-packaged diversified ‘fund of funds’ or using the services of a ‘robo-adviser’, such as Wealthify, Nutmeg and Moneyfarm*. They are online investment managers which use computer models, known as algorithms, to manage portfolios. Their services are lower cost than traditional wealth managers but involve little to no human interaction with their customers.
If you feel happier selecting and managing your own investments then you will need to choose an investment platform with which to open a Stocks and Shares ISA. When you choose a Stocks and Shares ISA platform think about the types of investments you wish to hold within your stocks and shares ISA. Funds, investment trusts, index funds, ETFs, direct shares or bonds can all be held within an account, so make sure the investment platform offers the investments you require.
There are potential charges to bear in mind. These fees include:
- Platform administration charges
- Fund charges
- Charges to switch between funds
- Charges associated with buying and selling investments
- Bid/offer spread
- Transfer fees
Make sure you choose an investment platform that is able to keep costs and charges as low as possible, particularly in relation to the size of your portfolio (click here to find the best platform for you). Popular brokers include Interactive Investor*, Hargreaves Lansdown*, AJ Bell* Fidelity* and Charles Stanley*.
It is also worth checking that the minimum amount that is required to set up the ISA account is in line with what you plan to invest. For example, some robo-advisers like Wealthify have a minimum investment amount of just £1.
Step 3) Determine your risk profile
Before you start to invest, think about your objectives, time horizon and attitude to risk. These factors will have a bearing on whether you are investing for income and/or growth.
Completing an online risk questionnaire may help you to shed some light on these aspects. Finametrica, for example, offers a risk profiling assessment for £30. Alternatively, you could fill out one of the online risk-profiling questionnaires that robo-advisers offer as part of their onboarding process (without necessarily signing up).
Step 4) Choose your investments
You can open a Stocks and Shares ISA at any point during the tax year. The ISA provider will require your address, nationality, date of birth, phone number and national insurance number. They are also likely to ask for ID and proof of address.
Once the ISA provider has verified your details, the account will go live. However, it is important to note that you are under no pressure to invest straight away. For example, you may decide to hold fire if you are concerned that markets look expensive. Some people make lump-sum contributions into their ISA, while others prefer to drip-feed money on a regular basis. Much will come down to your investment experience and knowledge.
Make sure you research potential investments, monitor the market closely and eventually get round to investing - as you don’t want the cash to sit there for a prolonged period earning little to no interest.
Some investors have a preference for actively managed funds, while others like passive investments - such as exchange-traded funds (ETFs) and index funds that track the market. Most investment platforms offer both and savers can opt for a combination of the two.
If you have a strong bias towards passives, you may consider the Vanguard Investor platform. It has a competitive annual account fee but only offers Vanguard funds. Check out our independent Vanguard review for more information or alternatively, if you want to invest in other funds as well as Vanguard, take a look at Interactive Investor. Also, you should take a look at InvestEngine, a platform that allows you to invest in over 500 ETFs for free. Robo-advisers tend to invest in passive funds, which helps to keep costs down.
Step 5) Account settings
You may wish to set up stop-loss and limit orders for stocks and investment trusts from the outset. This sets a target price to either buy or sell shares at. Finally, remember to update your settings and specify preferences for things like paperless reporting and fund alerts.
Finding the right Stocks and Shares ISA for you
We are often asked by readers to name the best performing Stocks and Shares ISA. This is a difficult question because a stocks and shares ISA is simply a tax wrapper. Ultimately, the underlying investments will determine performance, as well as charges.
If you opt for the DIY route, the returns that are generated will come down to your investment skill, timing and the impact of charges.
There are thousands of funds available to buy, so it can feel overwhelming when it comes to deciding what makes it into the portfolio. The good news is that it doesn’t have to. There are plenty of tools out there to help investors to make investment decisions.
MoneytotheMasses.com's 80-20 Investor Service is a prime example. It uses a unique algorithm and research to identify the best funds to invest in. We analyse thousands of unit trusts, investment trusts and ETFs to produce a shortlist of funds that should be available to buy on your chosen platform.
Since launch, the portfolio has performed better than the market, passive investment strategies and 90% of professional fund managers. Check out our 80-20 investor page for more information or to start a free trial. We have also written about the best performing funds to invest in right now.
If you are more comfortable using a robo-adviser to manage your stocks and shares ISA, Money to the Masses can provide some clarity on the charges and services available from different providers. Check out our independent reviews of Wealthify, Nutmeg and Moneyfarm.
Finally, check that you are getting the best deal. Take a look at our article where we list the best ISA cashback deals which also includes the ISA providers that fee-free investing for the first year.
If a link has an * beside it this means that it is an affiliated link. If you go via the link Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. But as you can clearly see this has in no way influenced the above editorial. The following links can be used if you do not wish to help Money to the Masses or take advantage of the exclusive Money to the Masses offers - Interactive Investor, Hargreaves Lansdown, AJ Bell, Fidelity, Charles Stanley and Wealthify.
