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How to find the best funds Isa
Charges for funds Isas vary greatly, so choosing the best broker for you takes research. Here, we aim to help you narrow down the types of brokers likely to suit you.
Choosing a cash Isa is relatively straightforward. You decide how long you're prepared to lock your money away for, and look for the account with the best interest rate. Choosing a broker for your funds Isa takes more research. Charges vary greatly between brokers. The best-value Isa for one investor may be a poor deal for you.
So begin by asking a few questions about how you'll be investing. This will help you narrow down the types of brokers likely to suit you.
1. How large is your portfolio?
This is often the most important factor. Investors with small portfolios are usually better off with firms that charge a percentage of the value of your portfolio. Larger investors are normally better suited to those that charge flat fees.
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Some brokers simply levy a fund custody fee and no extra charges for trades. Others charge commission every time you buy or sell. If you will be switching funds very frequently, you may be better off with a broker with low, or no, trading fees, even if the account fee is higher.
Some brokers have discounted rates (£1.50 per trade is typical) if you make monthly investments into one of a range of selected funds. That may be the best option if you're planning on puttingaside money steadily.
4. What funds do you need?
Most investors put their money into a few funds from major fund managers. So it makes little difference to them whether a broker has 1,500 funds or 3,000 funds on their platform. But if you want to invest in specialist products and funds from some smaller managers, not every broker will carry them. In that case, you should draw up a list of what you need and check it with your chosen broker.
5. Do you want to hold shares, investment trusts and exchange-traded funds (ETFs)?
Most major brokers now offer both funds and shares (including investment trusts and ETFs) in the same account. Unfortunately, the cheapest brokers for funds often don't offer the best deal for stocks. So think carefully about whether the convenience of having everything in one place is worth the cost. (We look at brokers for stocks here.)
6. How important are the add-ons?
One reason why more expensive brokers such as Hargreaves Lansdown continue to attract customers is that they provide extensive online research tools. For some investors especially beginners that makes investing easier and is worth the extra cost. For others who are happy to look for information elsewhere, there's no reason to pay any more for this.
7. Does customer service matter?
We don't believe you need to pay over the odds to get good customer service: some of the cheaper brokers are very efficient. But there's no doubt that some brokers have a reputation for being less good, and factors like that can't be easily captured in comparison tables. So it's worth researching this. Internet forums can often be a good way to find out what existing customers think.
Once you know what kind of broker you're looking for, it's time to draw up a shortlist. While the choice can seem daunting, the reality is that for most people a handful of firms will work out cheaper than the competition. We've highlighted a few to consider below and there's a bigger table here.
Cavendish is a discount broker that uses the Fidelity Funds Network platform. In most cases using Cavendish will be cheaper than going direct to Fidelity. It represents exceptionally good value for smaller portfolios.
Charles Stanley has similar charges to Cavendish (the 0.25% annual charge drops to 0.15% above £500,000, but there are cheaper providers for portfolios that large). Unlike Cavendish, it also offers share dealing.
iWeb is owned by Halifax and offers the same service as Halifax Share Dealing, with mostly lower fees. There are no account or custody fees instead it charges £5 per trade to buy and sell funds. It's good value for most portfolio sizes, especially if you don't trade especially frequently.
£20 per quarter (includes £20 of trades). £10 per trade
Interactive Investor's charges are very competitive for mid-sized and larger portfolios. Linked family accounts are covered by a single charge. Regular investments cost £1.50 and can be offset against the quarterly fee.
0.2% of portfolio value per year (max £200). £4.95 per trade
Youinvest offers a larger range of funds than most other brokers. The annual cap on the custody charge makes it a good flat-fee deal for portfolios over £100,000 (investors in this bracket could also look at flat-fee deals from Alliance Trust Savings and Share Centre). Regular investments costs £1.50.
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Join more than 165,000 subscribers and keep yourself informed with the latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
Cris Sholto Heaton is the contributing editor for MoneyWeek.
He is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is experienced in covering international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers.
He often writes about Asian equities, international income and global asset allocation.
