Top 4 Cheapest Stocks and Shares ISAs in the UK
- The Millennial Millionaire
- Nov 19, 2020
- 4 min read
When investing, it’s incredibly important to invest in low fee environments; otherwise the fees will eat away at your final return. Let’s take a look at two examples to help illustrate this.
Example 1 – you invest £500 a month at age 25. The stock market returns 9% a year annually, and your investment account and funds charge you 1% a year in fees. At age 65 – you will have £1,554,339.11.
Example 2 – you invest the same and the market returns the same – the only difference is that you find a low fee environment and are charged 0.25% a year. At 65 you will have £1,896,208.90.
That’s a huge difference in final sum for a small difference in fees. When investing you essentially have 3 goals:
1. Maximise Return
2. Minimise Risk
3. Minimise Fees
This article will help you focus on the latter.
Types of Fees
When finding a Stocks and Shares ISA in the UK – there are a few fees we want to consider:
· Transaction Fees (funds / stocks)
· Management Fees (funds)
· ISA fees (account)
Funds are, in essence, a collection of stocks which have a manager. Managers will typically charge a management fee on the amount that you have invested with them – usually a small percentage of the amount you choose to invest.
As you can largely buy funds in any of the accounts, we’ll be focusing on the ISA fees and touching on the stock transaction fees in this article.
For the remainder of this blog, we’ll go through some of the UK’s most attractive offerings.
Hargreaves Lansdown
Hargreaves Lansdown is one of the biggest platforms in the UK. Their fees are as follows:
· 0.45% ISA Account Fee
· £11.95 Transaction Fee
· 1% plus FX Rate foreign transaction fee
On face value, these fees may seem reasonable, which you’d expect from one of the biggest UK platforms. A key benefit of the platform is the number of stocks and shares they have available for users to buy on their platform.
Another benefit is that there doesn’t seem to be any minimum level of investment that you need to have in order to create an account with Hargreaves Lansdown.
Fidelity
Fidelity are another huge player in the UK – having won awards for their Stocks and Shares ISA offering. The fees for which are:
· Account Fee
o If investing less than £7,500 – 0.35% via monthly investing plan, £45 per year otherwise
o If investing between £7,500 and £250,000 then 0.35% (regardless of monthly plan)
o 0.2% if investments are between £250,000 and £1 million
o Nothing for investments in excess of £1,000,000
· £10 individual stock transaction fee (or £1.50 if part of monthly savings plan)
Unfortunately, I couldn’t find any information on the costs associated with purchasing stocks and shares abroad – such as the foreign exchange fee.
This account provides a lower cost alternative to Hargreaves Lansdown – especially when you start investing larger sums on money. If you have little money and intend to invest monthly then this is a particularly good choice too.
An advantage of Fidelity is that they too have a large number of individual stocks on offer.
Vanguard
Vanguard have made headlines as of late, especially in the Personal Finance space as a result of their great low fee investment options being available to everyone. Their fees are as follows:
· 0.15% a year account fee (capped at £375 a year)
This is by far the lowest account fee out of any provider so far. However, when you use their stocks and shares ISA you only have the ability to invest in their funds. This is not an issue if your investment tactic is to invest purely in low charge index funds which Vanguard have plenty of.
However, if you wish to purchase individual stocks – that is not an option in this account.
Freetrade
Freetrade is the new kid on the block when it comes to Stocks and Shares ISA. They’ve been growing quickly here in the UK and even offer fractional shares now. Their fees are particularly attractive too:
· £3 a month Stocks and Shares ISA fee (£36 a year)
· No share dealing fee
· 0.45% + FX rate foreign transaction fee
This presents great value to many of us investors, however it’s not all sunshine and rainbows. Freetrade have a limited number of shares available at the moment (but they are constantly adding more and more shares).
Some shares, which are considered more niche, require a ‘Plus’ membership option. This costs £9.99 a month – so if you like to play with smaller shares you may wish to pay for this option.
As this is a flat fee option – it’s useful to compare at which point the Freetrade account fee is better value for money than the other options.
Comparison
£3 a month is cheaper than 0.15% a year when you start investing more than £24,000 a year – so Freetrade is cheaper than Vanguard when investing more than this amount. The same is the case for more than £10,285.71 with Fidelity and £8,000 with Hargreaves Lansdown.
This is before considering that individual share transactions are not only available but free to purchase on the Freetrade platform.
Thus, for me the winner is definitely Freetrade. However, consider your financial situation and what you wish to do in your Stocks and Shares ISA – as the correct answer will always depend on your circumstances.
Remember that this is purely on a fee basis – you may wish to invest based off of the platform itself, customer service or reputation – all of which have not been considered in this blog.
Comments