Anyone who wishes to avoid the erosive effects of inflation currently running at around 2.5% higher than the best interest rates available on cash ISAs, will have to consider a stocks and shares ISA.
Stocks and shares ISAs allow risk-based investments such as company shares, funds and bonds to be held in an ISA wrapper that confers the same tax shelter properties as a standard cash ISA.
For those who have reached the decision to put all or a part of their annual ISA allowance into investments rather than keep cash, the next big decision is choosing the right stocks and shares ISA.
With plenty of choice on the market, it makes sense to shop around and find the best deal to suit your personal requirements.
When choosing a stocks and shares ISA it is important to not only look at the headline rates but all charges and interest offers within the context of what you expect your own portfolio to consist of and its value.
Extras such as access to research on investment options might also be important for some stocks and shares ISA holders.
Let’s cover how you should be assessing a stocks and shares ISA and some of the best on the market in 2017 for different portfolios.
Stocks and Shares ISA Providers
Banks often offer stocks and shares ISAs and it can be tempting to go for the easy option and opt for an ISA via your regular bank.
However, stocks and shares ISAs offered by the big high street banks often come with a limited range of investment choices and tend to rank badly on customer satisfaction in research on the best providers and products.
Fund supermarkets are at the opposite side of the scale and the range of funds, shares and bonds investors can choose from for their ISA is very healthy.
That is, after all, the whole point of a fund supermarket; they offer a rich selection of funds from different fund managers.
Fund supermarkets tend to be categorised as either ‘premium’ or ‘budget’. The likes of Hargreaves Lansdowne, Bestinvest, Alliance Trust Savings and Fidelity International fall into the ‘premium’ category because they offer a range of value added services and resources such as research and cutting-edge user interfaces.
However, those add-ons have to be paid for and fees can be expected to be slightly higher.
‘Budget’ fund supermarkets, on the other hand, offer limited or no add-ons and their stock and shares ISAs, while also providing a wide range of investment options, stick to the basics at a lower price.
Stockbrokers are very similar to fund supermarkets.
There are also budget stockbrokers such as x-o that offer execution only stock broking at rock bottom prices and also offer ISAs with among the lowest charges.
However, funds are usually not available from budget stockbrokers so their ISAs will only suit more dedicated DIY investors who prefer to make all their own investment decisions when putting a portfolio together.
Choosing the Right Stocks and Shares ISA
The first step is to define what is important to you.
If you want to invest in funds then you will have to choose an ISA that offers funds and preferably a good range of them.
If your provider offering extras such as research and tools to help you decide upon and subsequently manage your investments is important to you, you will probably have to opt for a premium fund supermarket provider.
However, assess the difference in costs.
There are plenty of free or subscription-based independent providers of research and other portfolio management tools. Using these in conjunction with a more budget ISA provider might add up to lower overall costs.
Keep in mind that stocks and shares ISAs usually charge fees that vary depending upon how much capital value you have built up in your ISA so assess the fees that apply to your portfolio.
Also choose an ISA that either doesn’t charge any exit fee or a very modest one. This means you can easily switch in future years if another provider is offering a better value package for your current ISA holdings.
The Telegraph has put together a great table of the cheapest and most expensive ISA providers for 2017, broken down by the capital value held within an ISA: