I talk a lot about investing here at The Frugal Cottage; if you follow our story then you will know that we are aiming for early retirement using dividend income as a means to do that. So that means using an investment account! But, how do you know which one to choose?
This post will talk through the investment accounts available here in the UK, plus the pros and cons for each of those.
Types of investment account
There are three main types of investment account here in the uk. These are:
- a stocks and shares ISA
- a SIPP
- a General Investment Account
A Stocks and Shares ISA.
An ISA stands for Individual Savings Account. This is a tax free haven that you can put your money into. You can currently put £20,000 into a stocks and shares ISA each year, but you can only put money into a single one each year. This is good for the tax free bit – if you earn any dividends or capital gains then they are not taxed in this account.
If you already have a cash ISA then you can transfer this to a stocks and shares ISA. Make sure you fill in a transfer form so that you don’t lose your tax free allowance in the process!
A SIPP.
A SIPP – which stands for Self Invested Personal Pension – is another type of investment account. It is a type of pension where you make your own investment decisions. Pensions are meant for your retirement so you can’t access your money until any time after your 55th birthday (57th from 2028). Pension and tax rules can change and the tax relief depends on your circumstances.
These are a good option if you are self-employed; you won’t have a pension through a work scheme so will have to set up your own. This is an option.
A general investment account.
This is the third type of investment account available in the UK. This is a flexible account which lets you buy, sell and hold all of your investments in the same place.
I have mentioned this many times previously but I have my stocks and shares ISA with Hargreaves Lansdown. 99% of my investments are in this so I don’t have to pay any tax on any dividend income or capital gains. It seems like a good solution to me 🙂 this is the latest dividend income update, if you want to see how my dividend income is going. I chose Hargreaves Lansdown – which is a brokerage firm that holds my investments – because of the simplicity of their website. It is easy to navigate, but their fees are slightly higher.
I also now have another investment account – through the app FreeTrade. This is what I call my experimental portfolio – more on that here – and I will see how this goes.
My husband has a stocks and shares ISA with Trading212 – another relatively new trading app. If you are interested in trying that out I do have a referral link which will get you a free share worth up to £100 for joining through the link. I intend to do monthly updates of both my FreeTrade account and the Trading212 account over on YouTube so don’t forget to subscribe over there.
If you want to get a free share of up to £100, then click this link and join. Let me know what you get!
So these are the three investment accounts available here in the UK. I hope you found this useful in starting your investment journey!
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PIN FOR LATER:
HL really are one of the more expensive brokers- are you going to stay with them even as your portfolio grows? Platform (and fund) fees take a huge chunk of growth in the long term- I wrote about it here:
https://southwalesfi.co.uk/2020/10/09/fees-and-fire/
Stay well 🙂
I am for now – the hassle of changing is not feasible at the moment. I would have to sell all of my holdings and at the moment some are running at a loss. I am ok with the fees for now – I like the site and how the platform works. Plus I like the variety of stocks and funds; hence why I didn’t choose Vanguard as the platform when I started.