Stocks and Shares ISAs: A Guide for Beginners

Britons prefer saving to investing, according to all the available data. So much so that almost one in five individuals have never heard of a Stocks and Shares ISA. But are we missing out on greater returns?

According to a 2025 survey by The Investment Association and Opinium, nearly one in five (17%) of UK adults have ‘never heard’ of a Stocks and Shares ISA, while 25% of those who have heard of it don’t know anything about it.

The survey, which focused on three groups of people, including 1,000 UK investors, 1,000 UK Cash ISA or Junior ISA holders, and 2,000 UK adults aged over 18 years old, highlighted a severe knowledge gap when it came to investing.

To highlight the extent of this gap, just 2% of investors surveyed claimed to be unaware of Stocks and Shares ISAs.

This lack of awareness when it comes to Stocks and Shares ISAs is especially worrying at a time when Chancellor Rachel Reeves has announced that the UK annual Cash ISA allowance is to be cut to £12,000 per year from April 2027, while its stocks and shares counterpart is set to remain at £20,000.

For savers, this means that there will be an £8,000 annual shortfall if they decide to continue saving through their Individual Savings Account rather than invest at least some of their finances.

A Nation of Savers

Historically speaking, Britain has been a more risk-averse country when it comes to wealth management. This is understandable due to the lasting impact of the 2008 financial crash, as well as clear memories among many savers of recessions in the 1980s and early 2020s.

However, surveys suggest that Britons are far more cautious than their US counterparts. Excluding workplace pensions, just 23% of UK adults have invested in the stock market.

According to YouGov data collected before Reeves announced Cash ISA allowance cuts in July 2025, 65% of British respondents claimed that stock market investing is too risky, while 41% believed that they knew too little about how markets work.

Worryingly, only 31% of respondents expressed a willingness to invest using a Stocks and Shares ISA. But are Britons right to be wary about investing?

Anatomy of a Stocks and Shares ISA

Individual Savings Accounts, or ISAs, for short, are tax-efficient products that can be used as both a savings or investment strategy.

For savers, Cash ISAs offer a tax-free allowance of £20,000 (set to be lowered to £12,000 in April 2027 for people under 65) in a similar way to traditional savings accounts, with many providers offering fixed-rate savings that loosely rise and fall based on the Bank of England’s interest rates.

For investors, Stocks and Shares ISAs are investment products that work as stock market portfolios. This type of ISA comes with a £20,000 tax-free allowance that won’t be reduced until at least 2030 and can be used to invest in a range of assets such as stocks, government and corporate bonds, and various types of funds.

Because of its tax-free wrapper, any profits made from Stocks and Shares ISA investments are completely free of income tax or Capital Gains Tax (CGT). Even if you decide to invest in dividend stocks, the money you make will be exempt from dividend tax, which, at a £500 annual threshold, can be a significant advantage.

Are Stocks and Shares ISAs Risky?

Given that 65% of Britons believe that investing is too risky to attempt, could opening a Stocks and Shares ISA mean losing money?

Because Stocks and Shares ISAs represent an investment in equities, there is a possible risk that you could lose money if your chosen stocks or funds underperform. However, there’s plenty of historical evidence that this isn’t the case when investing as a long-term strategy.

In fact, Stocks and Shares ISAs have a track record of outperforming their cash counterparts over prolonged periods.

For instance, over the past 10 years, Stocks and Shares ISAs have carried an average annual return of 9.64%. Meanwhile, Cash ISAs over the same period have mustered an average of 1.21% per year.

This means that Britons are in danger of losing out on their true earnings potential by avoiding investing altogether.

Thankfully, ISA allowances are highly flexible, meaning that wary UK adults can spread their savings and investments between Cash ISAs and Stocks and Shares ISAs for better risk management moving forward.

Should I Invest in a Stocks and Shares ISA?

If you’re one of the many savers who are wary of investing, using a Stocks and Shares ISA is a great way to build your investment portfolio. Most providers manage accounts on your behalf and offer calculations for your returns based on historical market performance.

By using an ISA to make your investments, you can take advantage of higher levels of tax efficiency while still having access to your funds should you wish to make a withdrawal earlier than, say, a pension.

Historically speaking, Stocks and Shares ISAs have been one of the most powerful investment tools at the disposal of UK residents, and those who have never heard of the product may come to find that they can grow their wealth more effectively by reconsidering their risk appetite.