With interest rates at an all-time low, standard savings accounts are a risky place to leave your money – inflation is running high and if you’re sticking with cash ISAs, it could mean you’re actually losing money in real terms. We show you how you can take control with a DIY self-select ISAs and decide what you want to invest your money in.
- What are self-select ISAs?
- What can you put in them?
- How much do they cost?
- How can you get a self-select ISA?
- Should I get a self-select ISA?
We may like to think putting our money into cash is safer than risking the highs and lows of the stock market, but with interest rates unable to protect against inflation, if you want to prevent your spending power being whittled down to nothing, you need to start looking beyond cash ISAs…
A self-select ISA is a type of stocks and shares ISA. This means that instead of putting your money into a cash account, earning interest, you can earn returns from the stock market.
These are designed for experienced and confident investors. The difference between a standard stocks and shares ISA and a self-select ISA is that you pick and buy the underlying investments yourself, instead of relying on a fund manager.
So, you can back individual shares, giving you complete control over your investments, whilst still benefiting from the tax-free status.
Here is a list of the various investments you can put into a self-select ISA:
- Individual stocks and shares
- unit trusts and open-ended investment companies (OEICs)
- investment trusts
- exchange traded funds (ETFs) exchange traded commodities
- gilts (government bonds)
- corporate bonds
There are a number of charges to watch out for with a self-select ISA:
1. There may be an annual administration fee. Some providers levy a flat fee, whilst others charge as a percentage.
For example both ShareDeal Active and Hoodless Brennan charge £50 plus VAT a year. Barclays Stockbrokers charges £30 plus VAT on balances up to £7,500, then £50 plus VAT on balances over this amount, but no administration fee is charged if only cash and funds from its Funds Market are held in the ISA.
TD Direct Investing only charges an administration fee (of £30 plus VAT) for balances below £5,100. With Interactive Investor there are no administrative fees at all.
2. Next up, check the dealing charge which is again, either a flat fee per deal, or a percentage rate based on the value.
This can vary widely from as little as £1.50 to £10 per transaction and will often depend on the type of investment too. For example, iWeb charges £10 for UK and international trades.
3. Another big charge to keep an eye on is for transfers – how much it costs to move existing ISA investments – which may vary depending on the size and type of investment.
4. Otherwise, see if there are any inactivity fees, dividend reinvestment fees, as well as any charges to close the ISA.
Self-select ISAs are offered by a host of stockbrokers and specialist divisions of banks – see the list below. The whole point of a self-select ISA is that you can choose from a wide range of investments so pick a provider that offers a range to suit your specific needs.
You should compare charges and features carefully. If you need a helping hand, the Association of Private Client Investment Managers and Stockbrokers has a useful ‘find a firm’ facility and you can even use comparisons sites such as Confused to compare charges at a glance (although remember they may not compare all providers).
First of all, remember that, from 6 April 2015, you have £15,240 you can put into an ISA. If you put in more than half into the stocks and shares ISA it will reduce the cash allowance – for instance if you put £8,000 in stocks and shares, you’ll only be able to put £7,240 in a cash ISA (assuming this tax year’s allowance).
As with a standard stocks and shares ISA, all the income and capital gains are tax-free, and in most cases you can expect equities to beat cash over the long term.
However, self-select ISAs have an added advantage because not only can you save more money, but you can also put in any investments that you want. Compared to a standard stocks and shares ISA, where you rely on fund managers to make the decisions, with a self-select ISA, you are in control so the responsibility for making the right decisions rests solely on your shoulders.
For some investors that is exactly what they want, but if this makes you nervous, or you’re new to investing, it’s a good idea to try a stocks and shares ISA first to build up your confidence.