What Will Be The Return On Investment?

The return you get will partly depend on the equity ISA product you choose and on the overall performance of the stock market – it’s very hard to accurately predict, therefore, how much you could potentially make. There are no guaranteed returns here – you could find yourself doing really well or losing your money. Your returns may also be affected by charges and stamp duty payments.

Can You Access Your Account?

You can generally access the money you invest in an equity ISA whenever you like. However, you should remember that these are seen as long-term products – if you access your money in the first few years of investment then you may not get back what you paid in.

Are There Any Risks?

There is always a risk with equity investment as you are effectively gambling on stock market movement. So, you have no guarantee that your capital will be safe. But, if the markets go well, then you could make significant profits. Most experts recommend that you will spread your risk by investing your money for as long as you can. Your risk may also depend on the type of investment package you choose for your ISA and where your investments are placed. For example, an OEIC (Open Ended Investment Company) ISA is often seen as less of a risk because you will be spreading your investment across various stocks and shares rather than concentrating it in one area.

How often interest is paid

Interest isn’t always an issue with an equity ISA – you’re looking at long-term growth on your capital here as well. If you opt for an equity ISA that also provides income you may be paid this monthly or annually.

What To Watch Out For

Although past performance never guarantees how any ISA will work for you in the future looking at previous returns for equity ISAs is never a bad start.

You are risking your money with an equity ISA – you have no guarantees that the stock market will do well enough to give you good returns and, if things go badly, you could actually lose your investment. And, an equity ISA is really a long-term investment.

If you withdraw money early on in the process you may lose out and may not be given back as much as you invested. Conversely, if markets do well, then you could make significant profits here. If you’re worried about charges and terms with an equity ISA you could always look at one with CAT standards, CAT (Charges, Access and Terms) was developed by the government to help consumers get the best deal and the easiest choice from ISAs.

So, for example, a CAT marked equity ISA will never be able to charge you more than 1% in costs. You do need to be aware, however, that CAT standards may change/be replaced in 2005 so the overall terms may change. If you opt for a non-CAT standard equity ISA then you may be subject to higher charges and different conditions but you may see a better return on investment. How well your equity ISA works for you is also somewhat limited by ISA investment limits. You can currently invest up to £10,200 in a maxi ISA.

Are There Alternatives?

An ISA is probably the most tax-efficient way to invest your allowance directly in the equity markets. You could look at a different type of shares ISA such as a bond account as well if you’re not fixed on equities. If you’re worried about risk then you could look at a tracker ISA or a simple cash ISA as an alternative.