YOU could be missing out on tens of thousands of pounds of extra cash by sticking all of your savings into a normal savings account.
Investing your money can get you much greater returns in the long run – but it can be tricky to know where to start.
Recent research by Wealthify found 70% of Brits who don’t invest say it’s because they lack knowledge.
But you might not be aware there are investment accounts set up to do the work for you, so you barely have to lift a finger.
Managed ISAs are a type of Stocks and Shares ISA that let someone else – usually the investment platform you’re using – manage the account for you and decide what funds to invest in or what shares to buy.
A Stocks and Shares ISA is a savings account where you can invest your money and the returns are tax-free.
With most Stocks and Shares ISAs, you’ll pick for yourself what you want to invest in and manage the account yourself.
But Managed ISAs are aimed at people who are less confident with investing or don’t have the time to manage the account themselves.
James Norton, head of retirement and investments at Vanguard Europe, said: “The reason people tend to open a Managed ISA as opposed to doing it themselves is that it can save time and have someone to guide you to the right investments, typically giving the responsibility to someone with more expertise than you.
“Managed ISAs are also designed to reflect your appetite for risk and the type of investor you are, so, for example, if you’re particularly interested in the tech or healthcare industry, then they can curate an investment portfolio or invest in a fund that reflects that.”
Analysis by Vanguard suggests if you’d put £5,000 in the global stock market 20 years ago, you would have £39,971 now.
If you’d put the same amount into cash savings, you would have about £2,049 in real terms after inflation.
If you put the same amount in five years ago, you would have £8,053 today compared with £3,931 in cash.
And if you’d done the same 10 years ago, you’d have £15,160 after investing versus £3,170 if you’d put the money into cash.
Of course, this is based on previous stock market performance and we can’t predict how it will perform in the future.
You should be aware that if you invest, there is a risk your money can go down as well as up.
Generally, you should aim to keep your money in investments for at least five to 10 years to give yourself the best chance of making a good return.
Managed ISAs are offered by a number of platforms, including Vanguard, Monzo, Wealthify, Moneyfarm, JPMorgan Personal Investing and Interactive Investor.
You should compare the fees charged by each one and also look at any terms and conditions before picking who to go with.
If you’re a bit confused by the fees and not sure how much it will cost you, plenty of platforms such as Fidelity, NatWest and Wealthify have calculators to help you work it out.
Vanguard has an account fee of 0.15% a year (up to a maximum of £375), a fund management cost of 0.17% a year on average, and a management fee of 0.20% a year.
That means if you invested £10,000, you would pay £52 a year in fees.
But you don’t need to invest that much – the minimum is £500.
Wealthify also has a minimum investment of £500 but has a 0.6% management fee.
If you want to start investing with a smaller amount, Interactive Investor has a minimum of £250 or £50 a month if you’re paying in regularly.
It’s worth noting that the fees you pay for a Managed ISA are generally higher than for regular Stocks and Shares ISAs.
This is because you’re paying for the extra work of someone else managing your account.
George Sweeney, investing expert at personal finance site Finder, said the fees charged for Managed ISAs can still be “reasonable” depending on the investing platform.
“Indeed, for some prospective investors, the relatively small fee can be money well spent if it means they can get started investing instead of being stuck in a state of analysis paralysis,” he said.
How to open a Managed ISA
First you should research which provider is right for you.
When you sign up for an account, you’ll usually answer a short questionnaire designed to work out how much risk you’re willing to take.
You’ll then be matched to a set of investments that works for you.
The platform will then manage your investment portfolio for you so you won’t have to do anything.
Some platforms have a team of experts who manage the accounts for you, while others are automated – you should check which one you’re signing up for.
You’ll then receive regular market updates and an annual review.
If you switch in your money from another ISA, you should make sure to use the official ISA form so you don’t lose any tax benefits.
What should you consider before opening an account?
You should think carefully about whether a Managed ISA is right for you.
One of the biggest drawbacks is that the fees are generally higher.
Charlotte Ransom, chief executive of Netwealth, says keeping a close eye on fees is “absolutely essential”.
“If you choose a Managed ISA, always ensure you understand what you’re paying for and the value you’re getting in return,” she said.
“Over time, excessive fees can significantly reduce your returns, potentially cancelling out the benefits of tax efficiency.”
You should also bear in mind that the minimum investment amount is usually higher for a Managed ISA than for a regular Stocks and Shares ISA.
You may need to pay in hundreds of pounds initially to get started, while some self-managed Stocks and Shares ISAs let you open them with just £1 or £2.
Another thing to consider is whether you would be better off going for a self-managed Stocks and Shares ISA.
Rajan Lakhani, personal finance expert and head of money at Plum, says: “The investments that are made – especially in mainstream platforms – are usually easily replicable.
“So you could actually do something similar yourself with limited effort and a little research.
“Many platforms, like Plum, offer starter funds that reflect different risk appetites and allow you to buy into the global stock market at low fees, helping you build a diversified portfolio to help you get your money working harder for you over the long term.”
If you open a Managed ISA then you’re not in full control over your investment choices so you won’t be able to avoid certain companies.
Still, the main benefits of a Managed ISA are convenience and being able to rely on others’ expertise.
You won’t need to spend time researching individual funds or keeping up with market changes – as the experts say, you can just “set and forget”.
Top tips for becoming an ISA millionaire
SAVING into a stocks and shares ISA can help you build wealth faster over the long term than cash savings. Dan Coatsworth, investment analyst at savings platform AJ Bell, gives his advice…
- Start as early as you can
Time in the market is important, not just so you can ride the market ups and downs but also to let your wealth build up.
Not everyone can afford to invest the full £20,000 ISA allowance each year, particularly younger people who might be on a lower salary.
The trick is to start as early as possible with what you can afford to invest. Increase your contributions as you get older, such as when you get a pay rise.
- Maximise your contributions
Try and invest as much as you can each month once you’re sure all the essentials are covered.
Create a budget so you can pay bills in full and clear any expensive debt, such as personal loans or credit cards.
The remaining money can be used to fund your lifestyle and to top up your ISA.
- Be consistent with contributions
Feeding your account on a regular basis means you get into the habit of squirrelling money away for your future.
After a while you get accustomed to that money going into your ISA that you may not even think about alternative uses for it, such as going shopping or down the pub with your friends.
- Keep an eye on costs and charges
Costs can add up over time and eat into your returns. Try not to fiddle too much with your portfolio as trading in and out of investments incurs transaction charges.
It is important to be patient with investing, especially for someone hoping to be an ISA millionaire as the journey to build up this wealth could last for decades.
Having a diversified portfolio is good practice for any investor and essentially means keeping different types of investments to help balance out the risk.
Then if something goes wrong with one of your investments, you’ve got the rest to hopefully act as a cushion to minimise the pain.
Diversification can involve investing in different industry sectors, geographies and asset types. For example, a diversified portfolio might have exposure to shares, funds and bonds from around the world.
Companies and funds often pay dividends every three to six months.
Think of these as rewards for taking the risk of owning their shares or fund units. While it can be tempting to pocket that income stream to spend on yourself, history suggests one of the biggest contributors to investment returns is reinvesting dividends back into your account to grow wealth faster.