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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.
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.
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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.
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.
£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.
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.
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.
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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.
