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Best Investment ISAs for 2020 Revealed

Looking for tax-free options on where to invest your money? Try opening a Stocks and Shares individual savings accounts (ISA). We walk you through the ISA essentials and introduce the best Stocks and Shares ISA provider for 2020.
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Author: Nica

Last Updated: September 4, 2020
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Today a savvy investor can maximise their investments by using their £20,000  tax-free annual allowance with a Stock and Shares Individual Savings Account (ISA).

All capitals gains and interest income earned is free of income and  capital gains tax. If you fail to use all or part of your tax-free allowance you lose it. It doesn’t rollover to the next tax-year.

Bear in mind that investments can go up and down in value and you may not get back all of the amount you initially invested.

In each subsequent year of  investing you can keep adding to your ISA pot and see the benefits of compounding, meaning that as you add money in the following year, your capital gains and interest earned is subject to the compounding effect, which will see your returns multiply accordingly.

Selecting the right stocks and shares ISA for your circumstances, and the provider that suits you best, is not  straightforward in a competitive and crowded market of providers. In this guide, we provide you with an outline of all the ISA types but with a particular focus on the stocks and shares ISA. Plus we select this year’s best stock and shares ISA providers.

Table of Contents

    Hargreaves Lansdown: Best Investment ISA 2020

    Our Rating

    • Huge variety of shares and funds
    • Investment ideas and research from expert analysts
    • User-friendly platform and app
    • Reputable and trusted broker
    Your capital is at risk.

    What are ISAs in the UK?

    An ISA is a type of saving vehicle that enables you to save and invest without getting taxed on any interest and income you make. In the current tax year, the total amount you can save in an ISAs is £20,000, which also known as ISA allowance.

    There are five main types of ISAs that you can pick depending on the investment type you want to be involved with. These include cash ISAs, help to buy ISAs, stocks and shares ISAs, lifetime ISAs, and innovative finance ISAs. Note that each type is charged differently.

    Top 2 Investment ISA Providers in the UK

    1. Hargreaves Lansdown Stocks and Shares ISA

    Taking the top spot is Hargreaves Lansdown’s stocks and shares ISA. You can opt for a do-it-yourself (minimum investment £100 or £25 per month) or a ready-made portfolio in which the provider will buy and sell for you in accordance with your risk appetite (minimum deposit £1,000).

    Taking the do-it-yourself route, you have the option of tailor-making your investment portfolio and the freedom to diversify across sector, regions, asset types and different investment vehicles such as funds, investment trusts, and exchange traded funds (ETFs). The website is rich with data and research tools, and there's commentary from analysts on individual stocks and funds, as well as 'macro' coverage on the economy, and particular sectors such as technology or pharmaceuticals. And to keep an eye on your investments on the move, the mobile app is first class.

    The annual charge for the account is up to 0.45%. There are no dealing charges for buying and selling funds, while for shares, the fee is £11.95 per trade if you made less than 9 trades in the previous month, £8.95 if you made 10-19 trades in the previous month, and £5.95 if you made more than 20 trades. Above £250,000 the annual charge reduces to 0.25% up to £1 million and between £1 million to £2 million falls to 0.1% (and no charges to pay above £2 million), and the charge then decreases until you get over £2million.

    • Highly transparent
    • Rich in analytical and research tools to inform your investment decision-making
    • Relatively inexpensive management fees
    • No demo account for the inexperienced to learn how to buy and sell shares
    Your capital is at risk.

    2. Nutmeg - No Unnecessary Costs

    Nutmeg is one of the leading investment firms in the UK. It was established in 2011 with the aim of stripping the unnecessary costs associated with investing. As a result, it makes investing accessible to a wide variety of people. The firm appeals to people with a small amount of money to invest and with little experience in investing.

    Since its establishment, the company has grown leaps to become a reputable investment firm. It has also won several awards such as the best online stocks and shares ISA provider award, Your Money award, etc.

    Nutmeg is a discretionary investment management firm, which means it makes all the investment decisions on your behalf. All you need to do is open an account and fill a questionnaire about your investment goals, risk tolerance, etc. This will enable the company to create a balanced portfolio that matches your needs.

    Currently, the firm offers five main investment products, which include stocks and shares ISA, pension, lifetime ISA, general investment account and junior ISA. It has a fully managed portfolio, social-responsible portfolio and a fixed allocation portfolio.

    It doesn’t charge account setup fees and exit fees as well as trading fees and withdrawals fees. In terms of return on investment, in the last 5 years, their lowest risk portfolio has averaged a return on investment of 0.4%, while the highest risk category has returned on average 8.4%.

    • Simple and easy to understand platform
    • No setup and exit fees
    • Offers an intuitive app
    • Few DIY options

    How to Invest in ISAs in the UK

    Stocks and shares ISAs are a great tax-efficient wrapper for your investment because of the tax-free ISA allowance. As well as the capital gains, the income you earn from this investment is also not taxed.

    Putting your money in an stock and shares ISA will likely to generate more income than in a Cash ISA. However, it is worth noting that you can also lose money on your investment due to the unpredictability of the stock market.

    How to Choose an Stock and Shares ISA

    Cost

    Due to increased competition, the costs associated with a stock and shares ISA have fallen. Now, it’s likely that you’ll pay between 0.25% to 0.45% annually for the administration of your funds. It is important to note that you can also incur an extra cost for any funds you buy. In most cases, it is about 0.75%, which is for the management of the investment. Also, make sure the provider does not charge unreasonable exit fees in the event you wish to move to another provider.

    Remember to choose an ISA provider that can offer you high-quality services at an affordable rate.

    Features

    Each ISA provider has different features. Choose an ISA provider with a reputation for offering top-notch online and mobile services. This will enable you to access and monitor your investment on the go.

    If you are a new investor, you should look for providers with simplified online experiences and then progress to more establish providers.

    Customer service

    Choose an ISA provider with reliable customer support that can you can easily contact via live chat, email, phone, etc.

    How To Earn More From Stock and Shares ISA

    Have an investment plan

    Before you start investing, it is very important to have a plan. Take time to think about the options available, your aims and objectives with your investments as well as how long you plan to invest. You can fine-tune it and add strategies on how to handle and mitigate risks. It is important to review the plan frequently or every time you want to make investment changes.

    Diversify your Investment

    Most first-time investors are attracted to individual shares. However, because the stock market is highly volatile, this can be a risky endeavor. Investing in a collective vehicle such as  funds, has the advantage of a professional fund manager doing the stock-picking for you, or you could select a passive fund that, for example, tracks the value of an index such as the FTSE 100 or NASDAQ. Funds are useful for  building a diversified portfolio.

    See How Much your Investments could be Worth using our ISA Returns Calculator

    Your Initial Deposit

    Enter "0" for initial savings if there is no initial deposit.

    Initial Savings:
    Lenght of Investment:
    Begin Investment:
    Annual Interest Rate (APR %):

    Deposits/Withdrawals

    Select "never" on frequency if no recurring transactions are made.

    Transaction Frequency:
    Deposit Each Cycle:
    Withdrawal Each Cycle:

    Income Taxes & Inflation

    Enter "0" in fields if you do not wish to adjust results.

    Annual Inflation (%):

    Here Are Your Results

    Total Amount Deposited:
    Total Amount Withdrawn:
    Interest Earned:
    Spending Power of Your Savings:
    Annual Percentage Yield (APY %):

    Conclusion

    Introduced in the 1990s, individual saving accounts (ISAs) are an incentive from the UK government to encourage people to invest and save. Think of an ISA as a wrapper or shopping basket in which you keep your assets tax-free. However, the amount you can put in a stocks and shares ISA is limited to £20,000 annually.

    Make sure to choose an ISA provider with a good management and efficiency track record and value-for-money charges to maximise the returns that you get from your stocks and shares ISA account.

    Hargreaves Lansdown: Best Investment ISA 2020

    Our Rating

    • Huge variety of shares and funds
    • Investment ideas and research from expert analysts
    • User-friendly platform and app
    • Reputable and trusted broker
    Your capital is at risk.

    FAQs

    Is it possible to have more than one ISA?

    Yes, you can hold all the types of ISA in the same tax year, but you cannot have more than one type of ISA in the same year. For instance, if you already have funded a stocks and shares ISA in this tax year, you cannot have another account of that type running concurrently. You can transfer accounts at any time.

    How much can I put into an ISA?

    Due to the numerous tax advantages of ISAs, the government limits the amount each account holder can contribute in each tax year. In the UK, the tax year runs from April 6 to April 5 of the next year. You can only put in £20,000 per tax year.

    Can I withdraw funds from ISAs whenever I want?

    You can withdraw from your stocks and shares ISA but those funds lose their tax-free status. If you want to transfer to another provider you must use the provider's transfer form to do so or you risk losing the tax-free status applied to the funds.

    Can I inherit an ISA?

    Nowadays, it is possible to inherit the ISA savings of your spouse or civil partner when they die and continue reaping the tax-free benefits. This is done by adding a one-off ISA allowance, which is equal to the deceased holdings. The additional permitted subscription will enable you to re-shelter the assets in your name without affecting your own ISA allowance of the same tax year.

    Is an ISA a safe way to hold my money?

    As long as the ISA provider is regulated by the Financial Conduct Authority (FCA), your funds are protected by the Financial Services Compensation Scheme (FSCS) up to the value of £85,000.

    See our full range of ISA resources

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    All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
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    Nica is a BA Political Science degree holder who fell in love with writing after college. She specializes in financial technology and cryptocurrency. At her young age, she was already able to work with founders who graduated from Harvard, tech startups funded by Y-Combinator, CEOs of multi-million dollar blockchain companies, investment companies in London and many more.