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Stocks & Shares ISAs

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Amy and Eesha | Edited by Johanna

Updated February 2018

Stock chart with a magnifying glass

This is a guide to getting the cheapest stocks & shares ISA. Every adult has a £20,000 allowance for 2017/18 - find out how to take full advantage.

This guide will help you decide whether you should use a stocks & shares ISA, tell you which are the cheapest providers, and give tips for those new to investing.

This is the first incarnation of this guide. Please suggest any changes or questions in the Investing in a stocks & shares ISA discussion. Thanks to Gavin Haynes from Whitechurch Securities for fact-checking the guide.

Stocks & shares ISAs: Need-to-knows

What is a stocks & shares ISA?

Everyone in the UK over 18 has a £20,000 ISA allowance. You can choose to use all of this for a stocks & shares ISA if you want, or you can put some in a cash ISA and the rest in a stocks & shares ISA. You can also choose to put the whole amount into a cash ISA.

The new ISA rules that came into effect in 2014 mean you can now split the money between stocks & shares ISAs and cash ISAs any way you like.

It may still be called an ISA, but a stocks & shares ISA is very different to a cash ISA, which is simply a savings account you never pay tax on. With a stocks & shares ISA you're investing. This could be in things such as:

  • Corporate and government bonds. You basically lend your money to a company or a government in return for interest (don't confuse these with fixed-term bonds, which are basically savings accounts held for a certain period of time).
  • Shares. You invest in individual companies. Owning a share is like owning a brick in a house wall. If the price of the house (company) goes up, so does your brick (share), and vice versa.
  • Funds. Most people use funds when investing. These can include bonds, shares, a mixture of the two, or in some cases, cash. Most funds have a specific theme, around which all the investments are based.

If this is your first experience of investing, it'll be worth reading our beginners' guide to investing to get a broader idea of what's involved.

Quick question

What exactly are funds?

Income and gains made are free of any tax

It's very important you understand what the tax breaks are and whether they really matter to you before you decide to use your ISA allowance for investing.

A. You don't pay capital gains tax (CGT) on gains made within an ISA - great if you exceed the £11,300 annual CGT allowance.

CGT is a tax you'll have to pay on the gain you make when selling things such as shares, a second home (you don’t pay capital gains on selling your first home) and jewellery.

So if you buy shares at £1,000 and then sell them for £1,500, you’ve made a £500 gain. You might then have to pay tax on that. But it’s important to understand that...

You’re allowed to make £11,300 of gains this tax year (2017/18) tax-free outside an ISA. So you would ONLY gain using a stocks & shares ISA in a year where you were making total gains over £11,300.

B. Dividends are tax-free under the new dividends allowance.

There are two ways you make money from investing. One is when the shares increase in value and then you reap a nice little profit when you sell them. The other is when they pay dividends.

Dividends are a bit like interest on a savings account. If a company makes a profit, it gives some of it back to you - it could be on a regular basis or as a one-off. And just as you have a personal savings allowance for interest on savings, you also have a dividends allowance each tax year where the first £5,000 you receive is tax free.

Any dividends received above this allowance will be taxed - at 7.5% for basic-rate taxpayers, 32.5% for higher-rate tax payers and 38.1% for additional-rate taxpayers.

However, dividend income received on shares held in a stocks & shares ISA will be tax-free. (Older investors may remember when there was a 10% tax deducted from dividends at source which couldn't be reclaimed, which meant a stocks & shares ISA wasn't quite tax-free - this was abolished in April 2016.)

If you're a higher or additional-rate taxpayer who receives taxable dividend income, then you must inform HMRC.

C. You don't pay any income tax on interest from corporate bonds in an ISA.

With corporate bonds, instead of investing in a company’s success, you’re effectively lending money to it for a set time. In return, it'll have to pay you interest.

You're taking the risk that it won't give you the money back, so it isn't risk-free. But the good news is...

If you've got corporate bonds, or bond funds within an ISA that pays out interest, you don't have to pay any tax on it.

If you're investing in corporate bonds outside a stocks & shares ISA, it'll fall under the remit of the personal savings allowance. This means basic-rate (20%) taxpayers – will be able to earn £1,000 interest with no tax while higher-rate (40%) taxpayers – will be able to earn £500 interest with no tax. Additional rate (45%) taxpayers get nothing.

Bear in mind that this allowance covers your normal savings interest in a bank too as well as other forms of interest. As with the dividend allowance, you'll owe tax on any interest earned above its limit.

Still not sure? It's time for a table on the tax benefits of a stocks & shares ISA...

Will you benefit from using a stocks & shares ISA?
Capital gains tax < £11,300 Capital gains tax > £11,300 Tax on dividends Income tax on bonds
taxpayer (20%)
taxpayer (40%)
taxpayer (45%)
Quick questions:

How might CGT affect me?

Is investing right for me?

It's really not a question we can answer - it all depends on your personal circumstances and the amount of risk you're willing to take. But as a rule of thumb, you should invest for at least five years. This allows enough time to ride out any bumps in the market that might see you make a loss on your money.

As such, if you're looking to use your money within the next couple of years, you should probably stick to cash savings such as a cash ISA. See the Top Savings and Top Cash ISA guide for more.

It’s very important to understand that there’s no such thing as the best stocks and shares investment.

Over the long run, historically stocks and shares have outperformed money in savings accounts. But that's no guarantee they'll do so in the future.

Remember, investments can go down as well as up.

Should I put my money in a cash ISA or invest it all?

It depends whether you gain from the tax breaks above and if you're willing to risk your money investing. In a nutshell:

  • If you're a basic-rate taxpayer you'd need to do a comparison between the amount of tax you'd get charged on savings outside a cash ISA and the amount of tax on any investments held outside a stocks & shares ISA. If you're unsure you could always stick to the previous ISA situation where you could only split the money between cash and investments 50/50.
  • Big investors, especially those putting money in corporate bonds, should ALWAYS max their stocks & shares ISAs (leaving no allowance for a cash ISA).
  • Only investing? ALWAYS max your stocks & shares ISA as it's often cheaper to invest within a stocks & shares ISA.

Don't confuse choosing funds with where you can buy your ISA

You can buy stocks & shares ISAs from different providers, but for the cheapest offers you want to do it through a website, often called a platform.

Investing in a stocks & shares ISA is a two-stage process. First you need to pick which provider to buy your ISA from, then you need to decide what investments to put in it.

It's like buying bread in a supermarket. You first need to pick where you want to buy the bread from (decide which platform to use), then choose what bread you want to buy from there (your funds).

You'll be charged both for using the platform and buying the funds. To stretch the analogy somewhat, imagine each supermarket charges a different price for its shopping bags.

Some supermarket bags are cheaper than others, but the ones that have the most expensive bags may be the ones that sell the bread the cheapest. So it's a combination of the two factors that needs to be taken into consideration.

Note that while the platform fee is charged by the platform you choose, the company running the funds will be charging you for the funds.

platform is like a supermarket while a fund or product is like bread

You can transfer your stocks & shares ISA into cash ISAs

This may be useful for people coming up to retirement who don't want to take a risk with their money.

If you're going to do this you'll need to contact your new cash ISA provider and tell them you want to transfer money from your stocks & shares ISA. Never just withdraw the money, you'll lose all the tax-free benefits.

Once you've filled out any forms, the transfer may take a few weeks. If you're opening a cash ISA with a different provider to where your stocks & shares ISA was, then you'll likely pay a closing fee, if you're switching with the same provider, there won't be a fee.

Drip-feeding money in over time reduces risk

It's tempting to try to time the market, but it's almost impossible and even the most experienced investors get it wrong. By pulling out of the market as soon as a share dips or trying to second-guess when a share will reach its peak, you could lose out on sharp recoveries or see the price go down again.

Instead, you should invest on a regular basis - in investment lingo this is called 'drip-feeding' - to smooth out any ups and downs. This will give you an added benefit of something called 'pound cost averaging'.

This is how it works:

If you invested a £10,000 lump sum and bought shares valued at £10 each, you'd have 1,000 shares.

If you bought £5,000 worth of the same shares per month over two months (amounting to 10,000 overall), you'd buy 500 shares in the first month.

But if the share price went down to £9.50 in the second month, you'd be able to buy 526 shares, as the shares are at a lower price.

So, rather than your full £10,000 investment being affected by the drop in share price, only half of your money drops in value.

In this example, a lump sum of £10,000 buys 1,000 shares while two payments of £5,000 buys 1,026 shares. Smaller investing on a regular basis means any drop in share price wont be too noticeable.

Use your allowance by 5 April 2018 or lose it

You must save or invest in your stocks & shares ISA by 5 April, the end of the tax year, for it to count for that year. Crucially, any unused allowance doesn't roll over - so if you don't use it, you lose it forever.

Any savings or investments which stay within the tax-free ISA wrapper will continue to earn interest and reap the tax benefits until you withdraw the money.

So it's possible to have substantial amounts invested within ISAs: well over £100,000 since ISAs began in 1999.

Understand the charges of a stocks & shares ISA

Both the platform and the funds you invest in will cost you money. The main ones to look out for are:

  • Platform charge.

    It's as if you have to take a supermarket's bag, and some charge you 50p for it and others charge you 10p. This can either be a flat fee (best for high investors) or a percentage of the value of your funds (the larger your funds, the more it'll cost you).

  • Fund manager charge (also known as annual management charge).
    Then you'll also be charged for everything you put in that bag - the funds you invest in. This is the charge by the actual manager of the fund held within your stocks and stocks & shares ISA. This is always a percentage and can typically vary from 0.1% - 1% per fund, depending on which fund you’re investing in.
  • Selling/buying funds.
    This is the cost every time you buy or sell a fund on the platform. These can be anything from £0 to £25. So if you're an active trader, looking for a low trading charge should be a high priority.
  • Transfer out fee.
    The cost involved in moving your stocks & shares ISA from one platform (provider) to another. This is usually charged per fund, so the more funds you have within your stocks & shares ISA, the more it’ll cost you. However, some platforms don't charge a fee for transferring out.

Is your current stocks & shares ISA overcharging?

Once you've got your head around the various charges, it'll be easier to work out whether your current stocks & shares ISA provider is overcharging you.

A platform might have been cheap at first, but new charging structures mean it may no longer be.

Hargreaves Lansdown, the biggest provider, is now more expensive than some other ISAs.

We're telling you this because we know many people have their ISAs with it. But its new 0.45% platform fee on the first £250,000 of funds means that for many, it'll no longer be the cheapest platform. It's worth pointing out that for any shares the 0.45% fee is capped at £45 a year, but for funds it'll be 0.45% on everything up to £250k, so could be a lot more substantial.

It is by no means the most expensive, there are platforms that charge much higher fees, but it is not as competitive as our best buys below.

For example...

If you have £20,000 invested in funds with Hargreaves Lansdown, you’d be paying £90 a year in platform charges. This compares to £50 with Cavendish Online.

The larger your investment, the bigger the difference. £100,000 invested in funds with Hargreaves Lansdown would cost you a whopping £450 a year compared to £250 with Cavendish Online.

Quick question

How much does it cost to invest with Hargreaves Lansdown and other platforms?

Best buys: New stocks & shares ISA providers

The best buys have been calculated based on their current platform charges. Obviously, if you're holding funds over five to 10 years, charges can change.

If you want to invest in specific funds, try to check their charges on different platforms, as we’ve just taken an average basket of funds for our calculations.

Quick question

How did you do your analysis?

Good if you want to trade & easy-to-use website

Charles Stanley Direct

Charles Stanley Direct has very similar charges to Cavendish Online (below), so it's very difficult to separate the two. Like Cavendish, it has no trading charges on funds and no exit fees.

The main distinguishing feature of Charles Stanley Direct over Cavendish Online, is that if you are new to investing, you may find Charles Stanley Direct's website easier to use.


  • Platform charge: Up to 0.25%
  • Average fund manager charge for our basket of funds: 0.53%
  • Min deposit: £50 regular monthly direct debit or £500 lump-sum
  • Transfer out fee: £10
  • Number of funds available: 3,400
  • Buying/selling funds: £0

Cavendish Online

Route to Fidelity platform for smaller fee

Cavendish Online*

For small investors, Cavendish Online has one of the lowest platform charges of up to 0.25% for under £200k and 0.20% for above £200k . So if you're only investing £1,000, you'd be paying a tiny platform charge of £2.50 a year.

Cavendish offers a discounted route to one of the most popular fund platforms - Fidelity. If you went direct to Fidelity you'd be paying a platform fee of 0.35%. So if you don't mind the no frills approach Cavendish offers and want access to the funds Fidelity has, you'd be better off using Cavendish to save on the platform fee.

Although AJ Bell below has similar platform charges tiered up to 0.25%, it has higher trading charges, so Cavendish Online or Charles Stanley Direct win if you know you'll be an active trader.


  • Platform charge: 0.25% for under £200k, 0.20% for above £200k
  • Average fund manager charge for our basket of funds: 0.5%
  • Min ISA deposit: N/A
  • Transfer out fee: £0
  • Number of funds available: 3,100
  • Buying/selling funds: £0

Good if you don't want to trade

AJ Bell*

AJ Bell has similar platform fees as those above of up to 0.25%. However, it does charge £1.50 for buying and selling funds, so if you know that you are going to trade a lot, then choosing our other top picks would probably be a better option for you.

One thing to be aware of with AJ Bell, is that if you transfer out to another provider in the future, there's a whopping £25 transfer-out fee per fund - so if you have a lot of funds to transfer, this could leave a big dent in your wallet.


  • Platform charge: Up to 0.25%
  • Average fund manager charge for our basket of funds: 0.51%
  • Min ISA deposit in ISA: £500, or £25/mth if regularly saving
  • Transfer out fee: £25 per fund
  • Number of funds available: 4,700
  • Buying/selling funds: £1.50

Best buys: ISA transfers (all allow new money too)

ISA Transfer arrows how to transfer your ISA

It’s important to understand that you get your ISA from a platform, and within that platform, you can have lots of different funds.

You have two choices. You can keep the same ISA with the same platform and switch funds within it. Or you can move platform (to take advantage of lower platform charges), and either keep the same funds (if they're available on the new platform) or have different funds in it.

If you want to use another provider, you’re going to have to do an ISA transfer.

pink trolley

Back to our supermarket analogy. You might have a favourite product that you buy at Sainsbury's, but when you start shopping at Tesco you realise that it doesn't sell it, so you have to buy a different product to replace it.

You have to weigh up whether you continue shopping at Sainsbury's to keep getting the product you like, or move to Tesco, hoping it has something you end up liking even more.

Here are our top transfer picks:

We've calculated our best buys based on their current platform charges. If you're holding funds over five to 10 years, these charges can change.

If you've got specific funds in mind, try to check their charges on different platforms, as we’ve just taken an average basket of funds for our calculations.

Quick question:

How did you do your analysis?

Cavendish Online

Route to Fidelity platform for smaller fee

Cavendish Online*

Cavendish Online has low platform fees, and also doesn't charge you for buying and selling funds. So if you are transferring in a relatively small amount and know you want to trade frequently, then this is a good option for you.

Also, in the future, if you wanted to transfer to another provider, it doesn't charge you any transfer out fees which is a bonus.

Cavendish offers a discounted route to one of the most popular fund platforms - Fidelity. If you went direct to Fidelity you'd be paying a platform fee of 0.35%. So if you don't mind the no frills approach Cavendish offers and want access to the funds Fidelity has, you'd be better off transferring to Cavendish to save on the platform fee.


  • Platform charge: 0.25% for under £200k, 0.20% for above £200k
  • Average fund manager charge for our basket of funds: 0.5%
  • Min ISA deposit: N/A
  • Transfer out fee: £0
  • Number of funds available: 3,100
  • Buying/selling funds: £0

Interactive Investor

Wide range of funds + mobile app + cashback

Interactive Investor

If you want a wide range of funds to choose from, Interactive Investor is a good alternative. It has a fixed platform fee of £22.50 per quarter.

Interactive Investor gives you two free trades per quarter, after this, additional trades cost £10 each. The more you trade, the cheaper it gets - £5 for 10 or more trades per month.

If you know you're an active investor and are going to make 20 trades in the first year, it'll cost you £210 (8 free trades, 12 trades at £10 plus platform fee) with Interactive Investor, assuming you transferred over 12 funds.

It has more funds than any of our other best buys that allow transfers, and offers a mobile app. If you want a diverse portfolio, and want to trade and check on your funds on the go, this is a good pick.


  • Platform charge: £22.50 per quarter
  • Average fund manager charge for our basket of funds: 0.75%
  • Min ISA deposit: £20
  • Transfer out fee: Free for first 10 funds within 1yr of opening, then £15 per fund
  • Number of funds available: 3,600
  • Buying/selling funds: 2 free each quarter, then £10 (£5 for 10+ trades per month)
  • How to transfer: Transfers take up to four weeks. You'll need to open an account and complete its transfer forms. There's a step-by-step process to do this, and telephone support on 0345 200 3637.

Is my money safe?

No, absolutely not. You're investing in stocks and shares, so the value of your investment can go down as well as up, at any point. But what happens if your provider goes bust? If you've bought funds through a company and it goes bust, then yes, your money is safe.

This is because if a fund manager goes bust and owes you money, funds will be protected and are likely to be taken over by another manager.

Always check if the fund manager in charge of your cash is covered by the Financial Services Compensation Scheme - most funds managed by UK fund managers are - where you can claim compensation of up to £50,000 per person, per institution. Remember, however, you won’t get any compensation just because the value of your investment falls.

Get free research to help choose a fund

candlestick stock chart with bollinger bands

If you're new to investing but don't want to pay someone to manage your investments for you, lots of the big providers have free detailed fund and stock market information on their websites. If you've jumped straight here, don't just dive in - it's worth going back to the start of this guide where we explain exactly how stocks & shares ISAs work and what a fund is.

Here are our top picks to get up-to-date, in-depth and easy-to-read information on funds, so that you can swot up before deciding where to invest your cash.

  • Hargreaves Lansdown*

    hargreaves and lansdown We've said before that Hargreaves Lansdown is one of the pricier platforms, but that doesn't mean it's a no-go for investing. It provides a pretty decent service and has a very helpful and easy-to-navigate website jam-packed full of information about funds - and you can make the most of this whether you sign up or not.

    You can search for funds by name, company and sector to find out more about them. Or start by reading about the type of investment sector you're interested investing in; for example Asia, the U.S, smaller companies in the UK or the so-called 'Equity Income' sector. For each, you can find an overview of how it's performed over specific time periods as well as reviews of specific funds within the sector and an explanation of how the sector itself works.

    The research team at Hargreaves Lansdown regularly runs a "Fund in focus"* feature to highlight one of the funds in the Wealth 150+ (Hargreaves Lansdown's selection of the best funds). Each focus gives detailed information about the fund's history and how it's performing, as well as the lowdown on any charges you'd have to pay on the fund.

  • Interactive Investor

    Interactive Investor Interactive Investor has a wide range of information, including beginner's guides on a range of investments and a glossary of terms you might come across while you're researching investments.

    Interactive Investor's research team have also produced tables showing the top 10 funds, the bottom 10 funds and the 10 most traded funds on its website in each monthly period.

    If you sign up for a free account you'll also be able to access the more in-depth technical insight section. Here, once you're logged in, you'll be able to select specific funds and review performance and see any patterns that have emerged over time.

  • Bestinvest*

    bestinBestinvest's research team looks at more than 85,000 funds and compiles research on a monthly basis. The website has a huge range of guides available to download for free, covering everything from how to spot the worst performing funds, to the top rated funds and general information on how stocks & shares ISAs and other products work.

    Bestinvest's Premier Guide is a summary of all the top funds (in Bestinvest's opinion) and breaks down how they choose them, how they rate funds and in-depth information on all the top performers.

    You'll also find stock market news and a tool that allows you to search for particular fund managers by their performance and track record.

  • Charles Stanley Direct

    If you don't need as much hand-holding, Charles Stanley Direct's website has a good round-up of what's going on in the markets.

    The market data section of the website breaks down lists of FTSE companies and allows you to check performance for any time period from 1 day to 3 years. You can also check which companies have risen and fallen, or view any changes by whole industry sector. All the information is updated every 15 minutes so you get a very accurate feel for what's going on in the market.

    There's also a news section on the website which is split by news, comment and fund research - so there's plenty of reading you can do before you get started.

If you're not sure how to invest and what to invest in, seek independent financial advice. Read the Financial Advice guide for more information.

Five golden rules of investing:

  1. The greater return you want, the more risk you'll usually have to accept.

  2. Don't put all your eggs in one basket. Try to diversify as much as you can to lower your risk exposure.

  3. If you're saving over the short-term, it's wise not to take too much of a risk. It's recommended you invest for at least five years. If you can't, cash is often best.

  4. Review your portfolio. A fund might be a dud, a fund manager might leave, or you might not be willing to take as many risks as you did before. If you don't review your portfolio regularly, you could end up with a stocks & shares ISA which loses money.

  5. Don't panic. Investments can go down as well as up. Don't be tempted to sell or buy funds just because everyone else is.

Cashback sites may pay you for signing up

As an extra boon, members of specialist cashback websites can be paid when they sign up to some financial products. Do check that its exactly the same deal though, as terms can be different. And remember the cashback is never 100% guaranteed until it’s in your account.

Full help to take advantage of this  and pros & cons in our Top Cashback Sites guide.

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