Watch our video: How does a Stocks & Shares ISA work?
MoneyPlus Features Team | March 10, 2020
Time to read: 2 minutes
A Stocks & Shares ISA is an individual savings account that can make your money work harder by investing. Our simple video explains what this means and how it works.
A Stocks & Shares ISA is a type of Individual Savings Account where your money has the potential to grow tax-efficiently.
However, unlike saving money into a Cash ISA – you’re investing it.
So, when you put your money into a Stocks & Shares ISA – it doesn’t just sit there.
Instead, it’s put to work and used to buy shares in different companies.
But what does this mean and how does it work?
Let’s start from the beginning and understand what it means to be invested.
When a company is trying to expand it looks for ways to raise money to fund its growth.
One way to do this is to divide ownership of the company into smaller pieces and sell these to the public. These pieces are known as stocks and shares or sometimes equities.
This might sound complicated but imagine the company is a cake. When you buy a ‘share’, you own a slice of that cake.
If those companies do well your share becomes more valuable and the money you invested could grow. Of course, if the company doesn’t do well; the value of your investments could go down.
That’s why it’s important to think about investing in a good mix of industries from different countries over the long term as it could help smooth returns if there is a market dip.
The better mix of investments you have, the less likely it is that the value of your money will change dramatically than if you were invested in a single industry or country.
So rather than using all your money to buy one cake, choosing different types and flavours could give you a better chance of making sure they’re right for you.
And remember, any money you do make is tax-efficient and you can invest £20,000 each tax year starting from 6 April. Any unused allowance won’t roll over – so if you don’t use it, you’ll miss out.
Investing makes your money work harder. The longer you do it; the greater the potential for success.
The value of your investments can go down as well as up and may be worth less than you paid in.
Laws and tax rules may change in the future. The information here is based on our understanding in January 2020. Your own circumstances also have an impact on tax treatment.