Self Select ISA Explained

A self select ISA, or "Individual Savings Account", is a tax "wrapper" which can contain equities, that is securities that represent ownership of a company, such as individual shares, bonds, or mutual investment funds.

The principal difference between a self select ISA and an ordinary stocks and shares ISA however, is that investment decisions initially and for the lifetime of a self select ISA are made by individual investors. This allows investors to draw on the full range of investments eligible for inclusion in an ISA, rather than being limited by a fund manager to say unit trusts or OEICs ("Open Ended Investment Companies"). Shares and other investments can be bought or sold by an investor at any time.

Self Select ISA Pros & Cons

The nature of a self select ISA is such that investors can invest money in the markets when they feel the time is right and have complete control over their investment strategy. Furthermore, if a self select ISA is used to invest in a mixture of funds through a fund supermarket, it is much easier for an investor to see the current state of all of his or her investments at once from a consolidated statement. This is preferable to trying to piece together the overall picture from numerous different statements from different providers.This means that any imbalance in a portfolio can be spotted and redressed immediately. Any return on investment is free from capital gains tax and the dividends paid on shares within a self select ISA are taxed at only 10%. This is of obvious benefit to higher rate taxpayers but less so to basic rate taxpayers. This is unless of course they intend to cash in their investment and would otherwise be liable for capital gains tax.

Money invested in a self select ISA can usually be accessed at any time but investors should recognise that a self select ISA, like any ISA, is intended to be a long-term investment. The earlier money is withdrawn, the less likely the investment is to yield a decent return or any return at all. Similarly, the total investment allowance of up to £10,200 per person, per annum, may represent a significant proportion of savings for many investors, but is not a huge amount in share dealing terms. This means that investors need to consider carefully the risks to which their investment is exposed. A narrow range of investment in just a few companies is typically a more risky strategy than a wider portfolio.

Obvious administration fees charged to a self select ISA account include those for opening the account, paying dividends, etc., and are charged either as a percentage of the total value of the portfolio or as a flat-rate fee. Less obvious fees however may include so-called "inactivity" fees. These are charged to an account if no buying or selling takes place in any month or quarter together with other charges such as those for reinvesting dividends, transferring stocks and closing the account.