Five of the best Isas for shares

There are a few differences between charges for funds and charges for shares Isas. Here's what to consider - and five of the best Isas for shares.

Cris Sholto Heaton's avatar
By
published
in Features

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.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

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

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

2. Alternate your Isa subscription between brokers.

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

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

Swipe to scroll horizontally
iWeb Share Dealing£5n/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£5.75n/an/a£10 processing fee for corporate actions (such as rights issues and stock splits).
X-O£5.95n/an/aRow 2 - Cell 4
AJ Bell Youinvest£9.95£1.50n/aAlso 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£1.50Isa 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.
Cris Sholto Heaton
Cris Sholto Heaton

Cris Sholto Heaton 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 especially interested in 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.

Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.

He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.

 

Latest