Investing basics: ISAs, pensions and index funds

Last reviewed October 23, 2026

Saving vs investing

Savings are safe but grow slowly. Investments go up and down, sometimes a lot, but over long periods they’ve grown much faster than prices. Investing suits retirement and goals years away; savings suit your emergency fund and near-term plans.

Shares, bonds and funds

What	You own	Typical behaviour
Shares	A small part of a company	Highest long-run growth, big ups and downs
Bonds and gilts	A loan to a government or company	Steadier, lower long-run growth
Index fund or ETF	A slice of every company in an index	The market’s return, minus a small fee

A global index fund holds thousands of companies around the world in one fund. Fees come in two parts: the fund’s ongoing charge and the platform fee of the company you invest through. Both add up over decades, so compare them.

Try it: how investing growsMove the sliders to see what regular investing adds up to.

Each month£200

Years30

Yearly return6%

After 30 years you’d have

£200,903

You put in£72,000
Growth£128,903

Start ten years later and you’d have £92,408: £108,495 less, though you’d only put in £24,000 less.

Returns aren’t guaranteed and vary from year to year. This assumes the same return every year, before fees and tax.

Which account to use

Account	Best for	Limit
Workplace pension	Retirement: your employer adds money, plus tax relief	Generous: most people won’t reach it
Lifetime ISA	A first home or retirement, if you’re 18 to 39 when you open it	£4,000 a year, plus a 25% bonus
Stocks and Shares ISA	Any long-term goal: growth and withdrawals are tax-free	Part of your £20,000 ISA allowance
SIPP	Extra pension saving you manage yourself	Shares your pension allowance

A rough order: pay into your workplace pension at least up to your employer’s maximum match, build an emergency fund, use a Lifetime ISA if you’re buying a first home, then a Stocks and Shares ISA.

Risk and staying the course

Markets have fallen 20% or more many times and recovered from all of those falls so far, though sometimes over years. The biggest risk for most people is selling in a panic. Investing a set amount every month, whatever the market does, takes the guesswork out.

Getting started

Have an emergency fund and no expensive debt.
Check what your workplace pension is invested in, and whether your employer would pay in more if you did.
Open a Stocks and Shares ISA with a low-cost platform and choose a global index fund.
Set up a monthly payment, and leave it alone.

Frequently asked questions

How much money do I need to start investing?

Not much. Many platforms let you start a Stocks and Shares ISA with a regular payment of £25 to £50 a month into a fund. Check the platform’s fees first, as some charge a flat amount that’s expensive on a small pot.

Is a Stocks and Shares ISA better than a Cash ISA?

For money you won’t need for at least five years, a Stocks and Shares ISA has historically grown faster, though its value goes up and down. For an emergency fund or money you need soon, a Cash ISA or savings account is safer. You can split your £20,000 allowance between them.

Can I lose money investing?

Yes. Investments can fall, sometimes by 20% or more, and you might get back less than you put in, especially over a few years. Spreading your money across thousands of companies and investing for the long term lowers the risk.

Should I invest or pay off debt first?

Clear expensive debt such as credit cards and overdrafts first: no investment reliably earns 25% a year. Keep getting your employer’s pension contribution, though, as that’s an instant return.

What happens if my investment platform goes bust?

Your investments are held separately from the platform’s own money, so they should be returned to you. If anything is missing, the FSCS can usually pay compensation up to £85,000 per person, per firm. It doesn’t cover your investments falling in value.