Is it a savings account? No. Is it an insurance product No. Is it an Individual Savings Account (ISA)? Yes! But why is a Stocks and Shares ISA different to other financial products?
Well, before we talk about why it’s different, we need to look at how we view the other products first.
Going back to basics, a Cash ISA or general savings account is usually (but not always) an instant access account. There are others available, like fixed-rate accounts – which guarantee you a particular rate if you don’t make any withdrawals over a certain period – but let’s focus on the instant access ones for now.
Let’s say you pay money into a savings account. You go to withdraw money from it, and, within seconds, the funds pop up in your bank account — simple! Let’s class this as a type of ‘instant gratification’ product, because you can access it instantly.
With an insurance product, you pay monthly or annually for a policy, knowing that you may not even use it. In fact, whether it’s car, house or even life insurance, you’re probably hoping you never have to use it in the first place, making it a safety net of sorts.
For that reason, let’s class this as a type of ‘sacrifice’ product, because you pay for it knowing that it’s money you won’t see again unless something goes wrong. Drastic, we know, but true!
Now, a Stocks and Shares ISA is different kettle of fish.
First and foremost, it’s important to understand that a Stocks and Shares ISA is a tax-efficient way of saving up to £20,000 each tax year.
It’s not, however, an instant access savings account, meaning you can’t get access to your money instantly. Instead, your money’s invested in the stock market, and the company holding it for you need to sell your investments first — which can take time. Once sold, the money can be transferred into your account (although you’re not guaranteed to get back what you put in).
The whole point of a Stocks and Shares ISA is to try to build your pot of money over time. Which, of course, comes with its own risks.
With that in mind, we could class it as a type of ‘delayed gratification and sacrifice’ product: because the money you invest should be an amount you’re comfortable spending, whether as a one-off or monthly instalment. And, in the same way you choose the level of insurance premium you can afford, it may be a good idea to think of a payment into a Stocks and Shares ISA in the same way.
Summary
In a world where almost everything can be instant – same-day deliveries, messaging, and video calls, to name a few – we completely understand why some people might get frustrated with not having access to (or seeing results with) their money instantly.
A Stocks and Shares ISA, however, is a long-term play (think five to ten years minimum); a way of using any money you can afford to put away now, and seeing just how much it could grow over time with investing.
Will the value of your investment go down? Yes, almost certainly.
But it’s how you react to the ups-and-downs that’s important, because fighting the urge to withdraw from your Plan at these moments – brought on by the fear of losing even more money – will mean you:
1.) Don’t make your losses real.
2.) Give it a chance to recover; something which, historically, the markets have tended to do over time (although past performance is not a reliable indicator of future results).
That’s why financial education is so important to us here at Wealthify: to make sure people are aware of all the facts and are selecting the products that are right for them before jumping on the investment ladder.
Ready to start your own Stocks and Shares ISA? Then click on the link to find out more. Capital at risk.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested. Past performance is not a reliable indicator of future results.
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