Five of the best Isas for shares

Choosing an Isa for stocks means going through the same questions as for a funds Isa. However, there are a few differences between charges for funds and charges for shares that you need to consider.

Unlike funds, there’s rarely a percentage-based fee for holding shares. Instead, almost all providers charge a flat-rate Isa administration fee, which is sometimes waived if your account is over a certain size, or if you trade often enough.
And some brokers still offer Isas with no account fees or custody fees at all for holding shares. These will usually be the cheapest choice (we’ve listed some below).

Since stockbrokers don’t make much money from you holding shares, their fees are geared towards trading commissions. These average around £10 per trade, but there’s a lot of variation in that and the cheapest brokers can cost half as much. Many brokers also offer discounted frequent trader rates, but it’s rarely worth paying attention to these. They typically kick in after you’ve made ten or more trades in a month. The average investor doesn’t make that many trades in the course of an entire year.

However, discounted rates for making regular investments into specific stocks, or for reinvesting the dividends you receive, can be much more useful. They are an extremely effective way of steadily building up a portfolio for investors who are saving a small amount each month.

Holding both funds and stocks

One of the biggest limitations of the Isa rules is that you can only subscribe to one stocks and shares Isa in any tax year, rather than splitting your investment across multiple brokers. That can be particularly frustrating if you want to hold both stocks and funds in your account, since you might prefer a different firm for each type of investment. In this situation, you have three choices.

1. Pick the firm that offers the best compromise between stocks and funds.

A few brokers are relatively competitive for both (see the table below for some ideas).

2. Alternate your Isa subscription between brokers.

Pay it into a funds account one year and a shares account another. Since you can have any number of old Isas open with different brokers, there’s no problem doing this. However, many investors find it a hassle to look after multiple accounts and prefer an all-in-one solution with a single broker.

3. Use investment trusts and exchange-traded funds (ETFs) for your fund investments.

These are listed on the stock exchange and trade just like a normal share, with the same charges.

The third option will often be the best solution. That’s because there are other good reasons to favour these types of investments in the place of conventional funds. ETFs – which are generally passive funds that try to track an index rather than beat it – typically have lower costs than traditional managed funds.

While the fact that they don’t try to beat the market may sound like a disadvantage, decades of research shows that the average manager underperforms the market after costs. So unless you are very skilled, or very lucky in picking managers, you will probably do better using passive funds.

The main advantage of investment trusts is that their share price is set by market demand, rather than being directly tied to the value of their holdings. That means you can often buy investment trusts at a discount to the value of their assets.

If the discount gets smaller, it can boost your profits – although obviously a wider discount would work against you.

Five of the best Isas for shares

Dealing commissions
Standard Regular Reinvest Notes
iWeb Share Dealing £5 n/a £2% (max £5) £25 account opening fee. Also offers funds with no custody and a £5 per trade dealing fee, so represents good value for investors wanting to hold both stocks and funds.
SVS Securities £5.75 n/a n/a £10 processing fee for corporate actions (such as rights issues and stock splits).
X-O £5.95 n/a n/a
AJ Bell Youinvest £9.95 £1.50 n/a Also offers funds, with a 0.2% per year custody charge (max £200) and a £4.95 per trade dealing fee (£1.50 for regular investments), so may be attractive for mixed fund and stock portfolios, especially when making regular investments.
TD Direct Investing £12.50 £1.50 £1.50 Isa account fee of £30+VAT per year, waived for accounts above £5,100, or where a regular investing plan is set up. Fairly good value for regular investments.

 

FREE daily investment email from MoneyWeek
Receive our thought-provoking investment email Money Morning every weekday morning, plus occasional promotions, & become a smarter investor.

Please enter a valid email address

To sign up, enter your email address:

MoneyWeek magazine

Latest issue:

Magazine cover
Bye bye Britain

Why the rich will leave

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


17 April 1961: America's ill-fated Bay of Pigs invasion begins

On this day in 1961, US troops landed in the Bay of Pigs on the south coast of Cuba in what would become a major embarrassment for America.

The Kids' Portfolio: the four best funds to buy for your children

Investing for your children's long-term future is an excellent idea. But what should you buy? The Kids' Portfolio is a simple collection of four funds intended to be tucked away for 20 to 40 years.