How much can I invest in an ISA and is a Stocks & Shares ISA the best choice?

Investing in a Stocks and Shares ISA is a great way for beginners to take control of their financial futures. It comes with a simple-to-use platform to see your investments clearly and to buy and sell shares easily.

“How much can I invest in an ISA?” is a question commonly asked. The answer changes occasionally, but the current limit is £20,000 in any tax year.

This means you can invest up to that amount in your Stocks and Shares ISA between April 6 this year and April 5 2021. And any gains realised will be yours to keep tax-free.

Stocks and Shares ISA vs Cash ISA

You can deposit your £20,000 in one lump sum or gradually throughout the year. Some people start with a small regular amount from as little as £25 or £100. Many never reach the allowed limit, while others invest the full amount immediately and reinvest any gains as and when they come in. Gains can be made from buying and selling stocks for a profit, or from any dividend income paid on your shares.

But is a Stocks and Shares ISA really better than a Cash ISA? Well, with both, the money you gain is exempt from tax. But with a Cash ISA this isn’t a very big benefit. Your cash sits there earning an agreed interest rate, very similar to a savings account, and available rates are very, very low. I’d much rather gain 3%, 5%, even 7% a year from FTSE 100 shares than an interest rate that’s less than inflation from a Cash ISA.

I also prefer the option of a Stocks and Shares ISA because it offers more flexibility, freedom and control. You can still hold cash in your Stocks and Shares ISA, but you also have the option to do so much more. You’re not limited to buying individual stocks and shares. You can invest in index funds, investment trusts, exchange-traded funds or bonds.

A long road to riches

Stock market investing should be for the long term. It’s not a get-rich-quick scheme to access overnight millions. It’s a gradual process that can generate considerable wealth, providing you are sensible.

“How long is long-term investing?” I hear you ask. Invest for a minimum of five years so that your investments have the time required to grow. Ten or even 20 years is better.

Until you withdraw the money, the savings and investments you keep in your ISA can carry on earning interest and you enjoy the tax benefits. You can keep adding your allowance each year and over time, the value of your ISA should swell.

ISAs began in 1999, so it’s viable that some people have hundreds of thousands of pounds saved in their ISAs — and there are even some ISA millionaires. There are many stories of ordinary investors who became ISA millionaires by taking a long and steady approach to investing.

Don’t waste your opportunity to make money tax-free. I think it’s a great way, even for beginners with little money, to discover the world of stock market investing. The stock market is a fascinating hub of real-life business activity and an exciting place to invest your cash.