ISAs, or individual savings accounts, are tax-efficient savings accounts. Everyone has an ISA allowance, which is currently £20,000, which means you can save up to this amount in an ISA every year and not pay tax on the interest.

There are 4 different types of ISA: cash ISAs, stocks and shares ISAs, innovative finance ISAs and lifetime ISAs. While most people will be happy to open a cash ISA themselves as it’s just a tax-free savings accounts, the other types might require some financial advice as they involve investing your money. So how much will it cost to get advice on an investment ISA? Let’s dive in.

How much does it cost to start an ISA?

Anyone can set up an ISA themselves, so the only cost is the money you want to put in it. However, setting up an investment ISA can feel risky, so you may want to get financial advice before you open one.

The average cost for a financial advisor to advise on and set up an £11,000 stocks and shares ISA is £450. If you want ongoing advice and management, expect to pay somewhere between 0.3-0.6% of the value of your ISA per year.

How a financial advisor can help with an investment ISA

1. Help you choose the right type of ISA

A financial advisor who specialises in ISAs will be able to help you choose the best ISA for you. While cash ISAs are more secure, they provide little return – as of January 2024, the best easy-access cash ISA interest rate is just 5.11%, and that’s the highest it’s been in years.

Your financial advisor can explain innovative finance, stocks and shares and lifetime ISAs with you to help you make your decision. These ISAs can deliver you a much higher return, but they are much riskier than cash ISAs and will be affected by market changes.

As well as deciding on the type of ISA, you’ll then need to consider which ISA provider you want to open your ISA with. Your financial advisor can help you find the best investment ISAs available for your financial situation.

2. Invest your money at the right time

If you choose a stocks and shares ISA, you’ll want to make sure you invest at the right time. Your financial advisor can advise you on the best time to invest in specific funds or help you choose an actively managed fund, so you can increase your chances of a higher return when markets are good but protect your investment when markets are down.

A financial advisor can also help you decide where to invest any money you have over £20,000. Since you can only invest £20,000 in an ISA every tax year, if you have more you’ll need to find somewhere else to invest that money until the next tax year.

3. Help manage risk

Every investment carries an element of risk. A financial advisor will help you find an ISA product that comes with a level of risk that you are comfortable with. They can carry out a financial risk assessment which will help them advice on the investment ISAs that are suitable for you and your attitude to risk. Remember that riskier funds can offer higher rewards as well as the higher chance of losing money, while more conservative funds could protect more of your initial investment but mean that you may miss out on higher growth.

Stocks and shares ISA

Stocks and shares ISAs can hold equities, bonds, investment funds and investment trusts. Once you’ve chosen a stocks and shares ISA provider, they will offer you a range of funds that you can invest in via your ISA. It’s important to understand what you’re investing in, which is why it’s best to speak to a financial advisor.

When you invest in a fund, you purchase units (your share of the fund) which will go up and down in price with the market each day, determining how much your investment is worth. Certain funds will be riskier than others, but the potential for growth is usually higher in riskier funds.

Pros

• A great way to start investing for the first time

• Invest in a range of funds without paying capital gains tax on the growth

• Easy to learn how investments behave over time

• Choose the level of risk you’re comfortable with

• Potential for growth is much higher than a cash ISA

Cons

• Any investment can go down as well as up

• Not suitable for short-term growth, unless very experienced

• Can only invest up to £20,000 per tax year

Are stocks and shares ISAs worth it?

Only you can decide whether a stocks and shares ISA is truly worth it. However, a stocks and shares ISA might be suitable for you if you’re looking for mid- to long-term savings. If you’re in a position to put money away for many years and not touch it, a stocks and shares ISA will often give you more growth than a cash ISA.

Innovative finance ISA

An innovative finance ISA, or IFISA, allows tax-free investment in peer-to-peer (P2P) loans. P2P loans give consumers the ability to offer their money as loans to small businesses and individuals, then earn interest on that money as it’s paid back.

There is, of course, a risk that that money isn’t paid back, so IFISAs are riskier than cash ISAs or other savings accounts.

Pros

• Generally better returns than cash ISAs

• Save up to £20,000 per year tax-free

• Flexible terms, so may be more suited to short-term investors

Cons

• Interest rate isn’t guaranteed, unlike a cash ISA or other savings account

• Your money isn’t protected by the FSCS if the ISA provider collapses

• Can be slow to withdraw money from an IFISA – you may have to wait up to 90 days

Are innovative finance ISAs worth it?

Whether an innovative finance ISA is worth it will depend on your attitude to risk. Speak to a financial advisor if you’re unsure whether it’s the right product for you.

It’s worth remembering that the rate of interest an IFISA says it can offer is a target. If someone defaults on their payment of the loan, you may not see any returns. Overall, IFISAs are riskier than cash savings or bonds, but are generally lower-risk than stocks and shares.

Can I have an innovative finance ISA and a stocks and shares ISA?

Yes, you can have an innovative finance ISA and a stocks and shares ISA, but you can only invest £20,000 per tax year.

You can also only pay into one IFISA per tax year, but you can hold several at the same time as long as you only pay into one.

Can you transfer an innovative finance ISA to a cash ISA?

Yes, you can transfer the funds in an innovative finance ISA to a cash ISA without affecting your annual ISA allowance. Never transfer out of an ISA into a normal savings account then back into another ISA, as your money will lose its tax-free status.

Bear in mind that you must transfer the entire balance of your IFISA to a cash ISA, so you may want to speak to a financial advisor first to make sure you’re doing the right thing with your money.

Things to think about before you see a financial advisor about an investment ISA

1. What are you saving/investing for?

You might be saving for your retirement, to buy your first home, or for other reasons. Certain types of life events might be better-suited to long- or short-term investments – a financial advisor will be able to help you decide where best to put your money.

2. Do you have spare money to invest?

Consider how much you can afford to put away. A financial advisor can help you decide on the figure, but having a look at your finances beforehand will give you a head start. Make sure you clear any debts first.

3. How much money are you willing to lose?

Remember that with any investment, there is a risk of loss. Think about how much you’re willing to, or can afford to lose, and how much of a risk you’re willing to take with your money. That will help a financial advisor to offer you advice on the best investment products for you.

4. How long do you want to tie up your money for?

How long you want to put your money away for will affect the type of products a financial advisor will recommend. For example, if you want access to your money after a few years, an innovative finance ISA may be better for you than a stocks and shares ISA.

5. Do you just want set-up advice or ongoing management?

Think about whether you just want advice on setting up your investment ISA or whether you want ongoing advice on when to invest in certain funds, when it’s the right time to sell or whether it’s best to transfer to another product. Ongoing management will of course cost more than a setup fee, so it’s important to consider what you can afford.

If you’re ready to explore investment ISAs but want some advice on the best product to choose, find a financial advisor with HaMuch through our partners Unbiased.

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