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Is a Fidelity ISA Worth It?

Updated: Sep 19, 2022

If you’re looking to save money without giving up access to your money, then the Fidelity ISA may be worth it to you. However, there are other investment options out there that have different benefits and drawbacks, so it’s important to do your research before making any final decisions.

Learn more about whether or not a Fidelity ISA could be right for you here.

Is a Fidelity ISA Worth It?

The benefits of having an ISA

From tax-free growth to protecting your savings from creditors, an Individual Savings Account (ISA) can provide some major benefits.

The annual allowance for an ISA is £20,000, and you don’t have to pay any tax on interest or dividends.

If you plan on saving long-term with a medium-risk portfolio, you could really benefit from making use of one of these tax-free accounts.

In some cases, it may even be worth paying off debt before investing in an ISA if you can avoid paying interest.

After all, your savings will grow faster if they’re invested than if they’re still sitting in cash form.

However, there are some drawbacks associated with having an ISA account.

The annual ISA limit

One of the main advantages of an ISA is that you don’t pay tax on your earnings, which means any money you put into an account will accumulate tax-free.

However, there is a downside – you can only invest up to £20,000 per year.

Should you invest in stocks or bonds?

Bonds are traditionally more stable and reliable investments, so investing in them is usually a safe way to go. With that said, they tend to be lower-yielding than stocks (meaning you won’t make as much money), so your portfolio may not grow as quickly.

You also have fewer options when it comes to where and how to invest, so diversification may be limited if you’re relying on bonds alone.

Investing in both stocks and bonds will give you a wider range of possibilities—but keep in mind that it might involve more risk.

And while stocks can be volatile during their initial public offering (IPO) phase (the first time they’re available for sale), they typically deliver better returns over time than bonds do.

How much should you invest?

Typically, you can contribute £20,000 per year through a Fidelity ISA. If your goal is to save for retirement, you’ll have a long time to accumulate that kind of money—and $1 million may not be enough.

How much should you invest in an ISA each year? Well, that depends on your financial goals and how long you plan to invest. The larger your goals and longer your timeline, then the more money you should set aside each year.

That's where a professional financial advisor comes in handy; they can help identify where exactly to park your money (and when) to meet any specific goals.

Drawbacks of an ISA

The biggest drawback of an ISA is that, like other retirement accounts, you’re limited in what type of investments you can make.

For example, most SIPPs, IRAs and 401(k)s allow you to purchase mutual funds; however, some can only be purchased directly from fund companies.

A traditional or Roth IRA will typically allow stocks and bonds to be purchased within your account; however, many investors choose to invest only in bonds.

And if you want to invest in a non-traditional investment vehicle such as real estate or commodities, neither a traditional IRA nor 401(k) will allow it.

Alternatives to Fidelity ISAs

If you’re wondering whether a Fidelity ISA is worth it, there are alternatives. As an investor in stocks, you may want to consider your 401(k) or IRA account as well.

A 401(k) might be preferable because of tax advantages and higher contribution limits, but if you don’t have a 401(k), then it might make sense to stick with your current savings and investments.

Additionally, some experts say that you have enough money saved for retirement already, which could mean that contributing more to your retirement accounts doesn’t make sense—especially since potential tax benefits aside, most people don’t tend to use their 401(k)s or IRAs during their working years.

Final words about the Fidelity ISA

When it comes to building wealth, you can’t go wrong with a stocks and shares ISA.

The investment choice is yours—whether that’s tracker funds, individual shares or unit trusts—but whatever you do, be sure to stay invested for longer than just a few years.

While investing in stocks and shares might not always feel like playing it safe, if you play your cards right and hold on long enough, your portfolio could grow into something worth more than anything else in your life.

That's why a stocks and shares ISA is definitely worth it: investing in yourself!

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