ISAs – how do they work?

5 min read 23 Nov 21

There are many ways that you can save or invest, and while we all want our money to grow, it’s important to think about the level of risk you might be willing to take with your money. It's all about achieving a balance.

There are four different types of ISA:

  • Stocks and Shares ISA 
  • Cash ISA 
  • Innovative Finance ISA 
  • Lifetime ISA

The M&G ISA is a Stocks and Shares ISA. See our ISA guide for more information about investing in The M&G ISA and the M&G Junior ISA.

How do Stocks and Shares ISAs work?

A Stocks and Shares ISA gives you a tax-efficient way to invest. Depending on what your ISA Manager allows, you may be able to invest in:

  • Shares in companies. 
  • Unit trusts and Open-ended Investment Company funds (OEICs).
  • Corporate bonds.
  • Government bonds.

A fund is where investors ‘pool’ their money to buy a range of assets such as bonds, shares (equities) and property. If you have a stocks and shares ISA, you can usually select different funds to invest in, plus move your money between these without taking it out of your ISA and losing the tax advantages. It's worthwhile checking with your ISA Manager to understand if there are any charges for moving your money between funds.

ISAs can be attractive because you don’t have to declare your stocks and shares ISAs on your tax return and you can access your money whenever you like. However, we believe staying invested for the long-term (5-10 years or more) will give you the best chance of achieving your savings goals.

The value and income from a fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.

You can also choose to transfer your ISAs between Managers if you’d like to and they’ll keep their tax-efficient status, but before you do it’s always worth checking with your individual providers first as there may be charges to pay at either end. Different providers can have different rules.

It’s important to remember that while your ISA is being transferred it will be out of the market so it will not lose or gain in value over that time. ISA and Junior ISA tax rules may change in the future and Junior ISA tax advantages depend on your individual circumstances.

How much can I invest in an ISA?

Each tax year you can put money into one of each kind of ISA. Right now you can save up to £20,000 in one type of ISA or split the allowance across some or all of the other types. Please note that the Junior ISA investment limit is slightly lower at £9,000 for the current tax year.

For example:

You could save £12,000 in a Cash ISA and £8,000 in a stocks and shares ISA in one tax year.

or 

You could save £11,000 in a cash ISA, £2,000 in a stocks and shares ISA, £3,000 in an Innovative Finance ISA and £4,000 in a Lifetime ISA in one tax year.

The above are just examples. You can choose how much to pay in as long as you don't exceed the maximum ISA allowance for the current tax year.

If you are looking to open an ISA you don’t always have to start with a single lump sum investment either. You can choose to begin with a one-off sum and at the same time start a regular monthly investment, or depending on the ISA Manager you choose, you may be able to invest purely with smaller regular contributions via a Direct Debit. You can choose whatever works best for you.

M&G are unable to give financial advice. If you are unsure about the suitability of your investment, you should speak to a financial adviser.

The views expressed in this document should not be taken as a recommendation, advice or forecast.

Further information on ISAs can be found on gov.uk

By M&G Investments

The views expressed here should not be taken as a recommendation, advice or forecast.

The value and income from any fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that any fund will achieve its objective and you may get back less than you originally invested. 

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