Investing seems complex when you first start, but picking the right investment funds for beginners can make it much more straightforward, and give you an easy on-ramp to building your wealth over the long term.

So if you’re wondering how to begin investing, picking out one or two top funds could be a great place to start.

“Investing is a measured and long-term process,” says Rob Morgan, chief investment analyst at Charles Stanley. “It involves taking risk but doing so in a way that minimises and mitigates it, to more reliably harness the growth available across global economies and individual companies.”

Investment funds are a particularly good option for beginners because they offer a convenient way to manage the level of risk you’re taking. Investing in a fund spreads your money, and therefore your risk, across dozens of different companies.

There are funds for almost any type of investment, from sustainable funds that can grow your wealth while making a positive impact, to AI funds that track the world’s most cutting-edge technology.

Investment funds explained for beginners

There are several types of funds, including:

• Open-ended funds;
• Closed-ended funds (or, more commonly, ‘investment trusts’);
• Exchange-traded funds (ETFs).

Each has its advantages and disadvantages. But the simplest and most relevant for beginner investors are ETFs.

An ETF is a fund that trades as a single share on a stock exchange. Its price changes while stock markets are open in line with changes in the price of the assets it tracks. You can buy and sell it in a stocks and shares ISA, just as if it was a stock.

There are ETFs for almost everything, but beginners might be particularly interested in ETF index funds. These track a specific index, such as the UK’s FTSE 100 or the US’s S&P 500.

“If you’re not sure which companies you wish to own, you may want to consider a tracker fund, or an ETF,” says Claire Exley, head of advice and guidance at J.P. Morgan Personal Investing. “These will allow you to hold a small amount of, for example, every company listed in the FTSE 100.”

Index funds are usually low-cost: because they just track an index, there’s not much to pay by way of management fees.

Best of all, they usually outperform more active stock-picking strategies. AJ Bell’s December 2025 Manager versus Machine report found that only 20% of actively-managed funds (IE, those where the manager decides when to buy and sell stocks, rather than just tracking an index) outperformed a passive alternative over the last five years.

Three types of investment funds for beginners to consider

If you are drawing up a shortlist of the first funds to add to your investment portfolio, investment platform AJ Bell breaks the available fund universe down into three categories in terms of the kinds of investments they make.

Global equity tracker funds

Funds that track the global stock market are a great way to get started in investing without having to decide on any specific region or industry.

“These funds provide low-cost exposure to companies around the world, with representation from a wide range of sectors,” said Dan Coatsworth, head of markets at AJ Bell.

Four of the best-known global equities (another word for ‘stocks’) indices are MSCI World, MSCI All Country World, FTSE World and FTSE Developed World. Tracker funds following these indices should register the same price movements (or very close to them) over any given timeframe.

Some of the most popular global stock tracker funds on AJ Bell’s platform are:

Source: AJ Bell, based on net flows from 13 April 2025 to 12 April 2026

Global bond tracker funds

If you’re looking for a more cautious approach to getting started in investment funds, you could look at bond funds instead.

“When shares fall, bonds often fall less and recover faster, helping to smooth the overall investment journey,” said Coatsworth. “That might suit someone in their 40s or early 50s approaching retirement, those already in retirement, or more anxious individuals.”

There are typically three types of bond that bond funds invest in – corporate bonds, government bonds (such as gilts) or a combination of the two (these are known as strategic bond funds).

Some popular bond funds for beginner investors on AJ Bell are:

Source: AJ Bell, based on net flows from 13 April 2025 to 12 April 2026.

Multi-asset funds

Most portfolios combine bonds and equities, as well as other types of asset. You can do this yourself by buying funds specialising in different investments, but a more convenient approach is to buy a multi-asset fund which acts as a self-contained portfolio in its own right.

“The more cautious you are, the greater the proportion you might want in bonds,” said Coatsworth. “However, there’s such a thing as being too cautious. Those with time to ride out the ups and downs of the stock market might want to avoid having too much in bonds as a proportion of their overall portfolio given the returns might be much lower than a more equity-weighted portfolio.”

Six funds for beginners

With input from Charles Stanley’s Morgan, we’ve picked out six investment funds for beginners, which we’ve shared below.

Fidelity Index World

Risk level: medium-high

A low-cost, cheap tracker fund is a great starting point to gain exposure to a market or sector, giving you convenient ownership of all or most of the companies that make up that market’s index.

Fidelity Index World is a good fund for beginners to consider because it provides a convenient tracker for the global stock market.

Personal Assets Trust

Risk level: medium-low

Personal Assets Trust (LON:PNL) is a multi-asset investment trust that sets out primarily to avoid losing money in inflation-adjusted terms (making it a less risky investment compared to funds that are more concerned with growing wealth than preserving it).

The portfolio comprises four main asset types: equities, bonds, cash and gold.

This has proved a resilient combination. The returns from each of these asset classes tend to rise and fall independently of one another, meaning that it can hold up even in changing market conditions.

Vanguard LifeStrategy Funds

Risk level: variable

The advantage of this multi-asset fund range is that it has several different funds, each with a different risk profile, so investors can select the one that best suits them.

Interactive Investor includes three in its quick-start fund range for beginner investors: 20% Equity, 60% Equity and 80% Equity, though the full range also includes 40% and 100% equity options. The remainder of the portfolio is invested in bonds.

As a rule of thumb, the higher the percentage of equities, the higher the risk profile, and the higher the potential returns.

Royal London Short Term Money Market Fund

Risk level: low

Money market funds invest your money as if it was cash, but they tend to generate returns just above the Bank of England base rate.

Interactive Investor includes Royal London’s Short Term Money Market Fund in its quick-start range, and characterises it as very low risk. This is a very cautious option: your investment is very unlikely to fall in value with a money market fund, but it’s also unlikely to grow much beyond inflation.

M&G Global Dividend

Risk level: medium-high

Dividends are the payments that companies make to their shareholders. Ultimately, it is dividend payments – or the expectation of future dividend payments – that gives shares their value.

M&G Global Dividend harnesses the power of dividend stocks, with a global perspective. It holds a wide variety of companies and could be of particular interest to investors seeking a rising income from their investments.

Scottish Mortgage

Risk level: high

Scottish Mortgage (LON:SMT) is one of the best-known investment trusts for innovation-led growth investing.

Morgan believes that anyone taking a long-term approach to investing should consider investing in a fund that looks for long-term growth through technological innovation. Their long-term perspective ought to let them ride out short-term volatility and reap the long-term rewards.

Scottish Mortgage invests in private companies like Elon Musk’s SpaceX or TikTok owner ByteDance, as well as those listed on global stock markets, offering opportunities that are otherwise hard for beginner investors to access.

Interactive investor, the UK’s second largest investment platform, has launched a managed ISA service to help investors who are just getting started. If you are keen to open a stocks and shares ISA but don’t know what to include in it, a managed portfolio could be a good solution.

Interactive investor's managed ISA allows you to choose from ten different ready-made portfolios. The investment platform says this service will bring a “whole new dimension of simplicity, convenience, and value to the UK investing landscape”. 

Interactive investor isn’t the only platform to offer a managed ISA product, though. The likes of Hargreaves Lansdown, Vanguard, AJ Bell and Wealthify all offer something similar. 

We look at how interactive investor’s new product holds up in terms of fees, investment choice and service. Plus, is a ready-made ISA a good fit for you, or would you be better off investing your £20,000 tax-free allowance elsewhere?

How does interactive investor’s ready-made ISA work? 

Interactive investor’s new ISA, known as a managed ISA, helps clients get started on their investment journey by matching them with a ready-made portfolio. This is then handed over to investment experts to manage.

For many, a key barrier to investing is a lack of knowledge or confidence. That’s where ready-made, expert-managed products like this one can help. They give first-timers access to the same wealth-building opportunities as more seasoned investors. 

But how does interactive investor’s ready-made ISA work?

Before opening a managed ISA with interactive investor, clients will be required to answer a series of questions. These will address how much they want to invest, and the level of risk they are willing to take. 

Once clients have answered these questions, interactive investor presents them with a portfolio recommendation that they can review. Once they are happy, they can open the account. Investment experts then manage the investments from there. 

Investors can select from five different levels of risk, and two different investment styles (index investing and sustainable investing). There are therefore 10 portfolios in total. 

The index investment style “aims to keep costs low by not making frequent changes to the investments held”, interactive investor explains. It primarily invests in passive funds which track a benchmark. 

The sustainable investment style also invests in passive funds predominantly, but combines them with funds that integrate environmental, social and governance considerations. 

“We are always looking to do more for investors, and our new Managed ISA will be a game-changer for the many who want some support in choosing and managing their investments, or perhaps just want that extra level of convenience,” says Richard Wilson, chief executive at interactive investor.

How does interactive investor’s ISA compare to others on fees? 

There are lots of things to consider when picking an investment platform for your ISA, but fees are one of the main things you should look at. High fees can erode your investment returns over time. 

The below table looks at managed ISA products from five different providers. It compares the fees they charge on a £20,000 investment. 

Interactive investor’s flat fee structure means it is competitively priced on an investment of this size, offering the cheapest deal of the group. 

Investment of £20,000

If you have less to invest, however, another provider might prove cheaper. We ran the figures on an investment of £10,000. In this scenario, Vanguard and Wealthify both charge lower fees. 

Investment of £10,000

Of course, you can continue to top up your investment over time. ISA rules allow you to stash away £20,000 each tax year. 

So, even if you don’t have £20,000 to invest initially, it is possible that you will be able to build your account balance up to this threshold within a few years – at which point a flat fee structure could be more beneficial. What’s more, hopefully your pot will grow as you build investment returns. 

This is something to bear in mind if you don’t want to end up having to switch your provider further down the line. Switching can mean selling your investments at an inopportune time, which can dampen investment returns.

Does interactive investor offer a similar service to other managed ISAs?

Interactive investor’s managed ISA service works in a similar way to others on the market. For example, most start with a series of questions to find out how you feel about risk. 

Most providers also give you some degree of choice in terms of the investment style you want to follow. For example, would you like to integrate sustainability criteria into your portfolio?

Once you have chosen your portfolio, most providers then manage it on your behalf. Let’s look at Vanguard, for example. This provider promises to “monitor your investments regularly and make changes to keep you in the right level of risk”. 

One provider that takes a slightly different approach is AJ Bell with its starter portfolios. These are more of a halfway house between a fully-managed ISA and a DIY account. 

AJ Bell clients can choose from four different portfolios – “cautious”, “balanced”, “adventurous” and “income”. Once clients have selected one, they can adjust the asset allocation and add other funds from the provider’s “favourite funds” list. 

Once the starter portfolio is set up, the AJ Bell client is responsible for managing it themself. 

If interactive investor clients want to enjoy the best of both worlds, combining managed ISA investments with more of a DIY approach, this is also an option. The investment platform allows them to do this at no extra cost, within the same flat subscription fee.

Is a managed ISA right for me?

If you are new to investing or don’t have time to research and manage your investments yourself, then a managed ISA could be a good idea. 

It doesn’t offer the same level of flexibility as a DIY account, though. As such, you might prefer a regular stocks and shares ISA if you already have a good idea about what funds or assets you would like to hold. 

If you opt for the DIY approach, bear in mind that you will also need to set aside time to manage your investments. This will include rebalancing your portfolio to ensure you maintain a decent level of diversification and the right amount of risk. 

Of course, stocks and shares ISAs aren’t the only option on the market. You could also consider a cash ISA if you need your wealth to remain liquid. Likewise, you might prefer a cash ISA if you aren’t willing or able to take on any investment risk. 

Cash ISAs have become increasingly attractive in the last couple of years, thanks to higher interest rates. The best cash ISAs are currently offering savings rates north of 5%. 

However, remember that stocks and shares almost always outperform cash over the long run. What’s more, interest rates have now peaked and the best savings deals are already starting to be pulled. 

Inflation is another important consideration, as it can erode the purchasing power of your money. If interest rates fall below inflation at some point in the future, then you will actually be losing money in real terms. 

Cash was offering negative real returns for over a decade in the aftermath of the global financial crisis. Real cash returns have only turned positive in recent months, as inflation has been slowing but interest rates remain high. 

If you have an investment horizon of three to five years or more, your money is usually better off in the stock market. But you should always keep some cash tucked away in a rainy day fund for emergencies. It is usually a good idea to build enough of a cash buffer to cover six months’ worth of expenses. 

Interactive Investor has cut the cost of its self-invested personal pension (Sipp) for small balances, lowering the monthly fee by £7. 

It means those with a pension pot worth less than £50,000 will now pay £5.99 a month for their Sipp. They previously paid £12.99.

The investment platform says it is leading a pension pricing shake-up in the UK. The move will ignite the debate between flat fees and percentage fees and the cheapest way to pay for stocks and shares ISAs, investment accounts and Sipps.

We look at how the Sipp compares to other products on the market - and depending on your balance, which pension provider is most cost-effective for you.

How Interactive Investor’s new pricing model works

“Pension Essentials” is a new entry-level subscription plan for pots under £50,000. Interactive Investor claims it is the best-value pension available on pots worth more than £15,000. 

Customers can hold funds (including exchange traded funds), investment trusts and UK and US shares in the Sipp. There is free monthly investing, while one-off trades cost £3.99. 

Once savers exceed the £50,000 threshold, they are moved onto the “Pension Builder” price plan, which is £12.99 per month. That’s regardless of whether they have £60,000 or £600,000 in their Sipp - the fixed fee stays the same.

“Our Pension Essentials subscription is designed to help people who are nearer the start of their pension journey,” said Alice Guy, head of pensions and savings at Interactive Investor. 

The company says it will alert existing customers with pensions below £50,000 so they can transfer to the new service and get better value for money.

Which Sipp is cheapest for you?

For very small pensions, Vanguard is the cheapest Sipp provider. It charges 0.15% a year. This means someone with £5,000 in their pension would pay £7.50 for their annual management fee.

A saver with £10,000 would pay £15, while someone with a £15,000 Sipp would pay £22.50.

AJ Bell is another low-cost option, charging 0.25% a year. This means a £12.50 annual fee for a customer with £5,000 in their Sipp.

In contrast, Interactive Investor’s Pension Essentials model is more expensive for these very small pots. Its annual fee is £71.88 (£5.99 a month x 12), on all balances up to £50,000.

Let’s look at a Sipp worth £20,000. Vanguard’s 0.15% fee increases to £30 a year. AJ Bell’s rises to £50. So, Interactive Investor still looks more expensive.

However, if you factor in investment trades throughout the year, a different picture emerges.

The consultancy The Lang Cat has crunched the figures, assuming portfolios of 50% funds and 50% equities with two fund trades and two equity trades per year, as well as 12 regular equity trades and 12 regular fund trades. This discounts Vanguard, as it only offers funds to invest in - it’s not possible to buy equities in a Vanguard Sipp.

For a £20,000 pot, Interactive Investor is the cheapest, at £87.84 a year. This compares to £103 (Fidelity), £108.90 (AJ Bell) and £113.90 (Hargreaves Lansdown).

For all pots between this level and £50,000, Interactive Investor continues to be the best-value - and in fact, the price gap widens as the percentage-based platforms become more expensive. For example, a £40,000 Sipp continues to cost £87.84 with Interactive Investor, but the charges levied by the three other platforms have all grown. Hargreaves Lansdown now charges £203.90 a year.

At £50,000, Hargreaves’s annual fee has ballooned to £248.90 (the most expensive platform reviewed by The Lang Cat), while a saver with a £50,000 Interactive Investor Sipp would pay just £87.84 a year.

The analysis shows that for bigger pensions, Interactive Investor’s Pension Builder plan, at £12.99 a month (or £155.88), also proves to be competitive. Savers with £100,000 in their Sipp would pay £171.84 (this includes the trades above, as included in The Lang Cat’s figures), while those with a £1 million pension pot would also pay this annual fee.

At £1 million, those with a Sipp with AJ Bell, Fidelity or Hargreaves would all pay more than £1,000 in annual fees.

According to Interactive Investor, its “flat-fee method of charging sits in stark contrast to the wider market, which is dominated by percentage fees, which sees customers paying more and more as their investment portfolios grow”.

Which other platforms charge flat fees?

Most investment platforms charge an annual fee that is a percentage of the investor’s portfolio.

However, along with Interactive Investor, a handful do levy flat fees. These include iWeb, which is owned by Lloyds Banking Group. It charges £90 a year for Sipps worth less than £50,000, and £180 for larger pensions.

Halifax Share Dealing also has flat fees - and for its Sipp, charges exactly the same as iWeb. Perhaps unsurprising given they are both part of the same banking group.

The trading fees do differ though - Halifax charges £9.50 per online trade, while iWeb charges £5.

In terms of the annual costs, both are more expensive than Interactive Investor.

What do the experts think of Interactive Investor’s new pricing model?

Experts agree that the launch offers pension savers a cost-effective and simple-to-understand option.

Bella Caridade-Ferreira, founder of price comparison website Compare + Invest, said: “With the Pension Builder Account and now the Pension Essential Account, Interactive Investor has made sure it is also competitively priced at the more modest end of the market — especially for younger people who are starting to build their pension savings. They now have every price point (or portfolio size) covered, which is disruptive.”

Holly Mackay, founder of the financial website Boring Money, told MoneyWeek that a "Netflix-style" pricing plan has its appeal. "For those starting out with a private pension, this model adds certainty and clarity, and undercuts most of the mainstream providers, particularly for those in the £20,000 to £50,000 range."

She added: "There are easier app-based journeys from some providers like Nutmeg, and low-cost ‘ready-made’ pensions from global giant Vanguard, but for those who want to learn and create their own pension portfolio, this move makes Interactive Investor a pretty compelling proposition to consider for smaller pension accounts."

Bear in mind that fees are just one factor - albeit an important one - when choosing a pension provider. Also consider the investment range on offer (is buying shares important to you? Do you want some easy model portfolios to invest in, or do you prefer a wide range of investments so you can “DIY” and build your own pension portfolio?), the customer service, how you trade investments (do you prefer to do it over the phone, or an app?), and so on. 

How frequently you buy and sell investments - and what you buy - plus whether you have other accounts like ISAs or general investment accounts with the same provider, may also affect the overall price of the Sipp, so make you look closely at all the fees, and don’t just focus on the annual cost.

With first-quarter earnings season in full swing in the US, interactive investor is marking the occasion with a three-day trading offer for US shares.

The investment platform will remove trading fees, which are usually £5.99 to buy and sell, on all US shares executed within the offer period from 26 April until 28 April.

It means until 9pm BST on Friday there will be no trading fees applied to all US stocks bought and sold on the interactive investor website and mobile app.

The offer coincides with the latest US earnings season, when some of the most well-known global companies will be sharing their quarterly results - essentially revealing signs about their financial health - to help investors make informed decisions about whether they should buy shares or retain the ones they already have.

Earnings season has so far revealed strong demand for cloud computing and digital advertising with Microsoft and Alphabet appearing in robust financial health. Microsoft’s revenue increased by 7% to $52.9 billion as its cloud business neutralised declining computer sales. Meanwhile, Google owner Alphabet’s revenue increased by 3% to $69.79 billion - a better-than-anticipated result.

Currently, no other UK investment firm is offering a similar opportunity to its customers: AJBell, Fidelity and Hargreaves Lansdown confirmed to MoneyWeek it had no plan to offer the same or similar.

What is the US earning season?

In the US, companies are required to report their earnings every quarter, unlike in the UK, which allows annual or half-yearly reports. Firms have to file the first draft of their financial data for the previous quarter a couple of weeks after the end of each calendar quarter - which in this case is the 31st of March.

This period is thus called “earnings season”. Analysts and investors then have the chance to look at reams of financial data to try and determine how a company is doing right now - and how it might perform going forward.

Why look to the US?

Savvy investors know the golden rule about diversifying and considering a mix of funds, shares and asset classes in order to spread your risk.

Lee Wild, Head of Equity Strategy, interactive investor, says: “Broadening your investment horizons geographically can be a powerful diversifier and help investors access growth outside of one’s home market.

“The US is home to some of the large technology companies, for example, which UK investors don’t have access to on their home market. None of us have a crystal ball, and earnings continue to give us a mixed picture, but investors have a breadth of choice at their fingertips.

“It’s not just household tech names that many of us have become familiar with. The US is the world’s largest market, with the broadest choice and plenty of hidden gems.”

Why look to the US during the earning season?

US first quarter earnings allowing investors to glean insights into the financial health of corporate America.

Victoria Scholar, Head of Investment, interactive investor, says: “Typically, earnings season provides investors with an opportunity to seize upon the bout of higher-than-average share price volatility.

Most interesting for private investors, the three-day offer from interactive investor is an opportunity to add new stocks to your portfolio and save some cash on trading fees.

US stocks to consider during earning season

Meta, parent company of Facebook and WhatsApp, has seen its share price rocket almost 70% year to date after the sharp declines of 2022. Might there be more to come once it releases its earnings results on 26 April? Staff at the tech conglomerate are bracing for another round of potential layoffs in May (following cuts in November last year and earlier this month), a move analysts are pinning on slowing ad revenue.

Meanwhile, Amazon is expected to report the following day, on 27 April. CEO Andy Jassy revealed only a fortnight ago in his annual shareholder letter that he’d spent recent months taking a “deep look across the company, business by business” and reflecting on numerous “simultaneous challenges” in the last year. Nevertheless, Jassy said he feels “optimistic and energized by what lies ahead”.

Elsewhere, whether or not the force remains with Apple – up by almost a third year to date – will be revealed next week when the tech giant plans to release its second fiscal quarter earnings results on May 4. The company missed expectations on sales, revenue, and profit on several lines when it reported its holiday quarter earnings in February. How will it fare this time?

Tesla shares are up around 50% year to date, rebounding from a torrid 2022.

The interest rates that brokers pay on cash balances in investment accounts are slowly ticking up – but as usual, they remain well behind the Bank of England’s base rate.

Hargreaves Lansdown, the UK’s largest broker, pays 1% for balances under £10,000 (1.7% in a self-invested personal pension – Sipp), rising to a maximum of 2.3% on balances over £100,000 in a Sipp.

Most other brokers such as AJ Bell and interactive investors are similar. Some are noticeably less generous: Barclays Smart Investor pays no interest on an individual savings account (Isa) or Sipp. Vanguard quietly used to pay base rate minus a small deduction, which amounted to more than you could get in any cash Isa.

However, after that got splashed all over various personal finance forums last month, the platform changed its terms and will now pay a fixed rate from later this month, initially set at 2.2%.

All of this is better than the zero that most brokers paid for the last few years (except for a few like Barclays, where clients might be well advised to grumble).

Still, many investors will wonder if there are ways to get a higher return if you’re holding a large amount of cash. And there is – but it is important to be aware that these funds are not the same as cash deposits.

Earn a better return on your ISA and SIPP cash

Cash makes a comeback In most brokerage accounts, you will be able to buy a range of funds with names such as “money market”, “liquidity” or simply “cash”.

These aim to deliver a return in line with a benchmark such as sterling overnight index average (Sonia), the rate at which UK banks and other institutions make overnight loans to each other. The funds do this by holding a variety of debt: bonds that are maturing soon, short-term loans to companies (known as commercial papers), deposits with banks and loans to financial institutions. Some of these debts may be repaid within days, others might have a maturity of a few months.

Details vary, but look at funds from big names – eg, BlackRock, Fidelity, JPMorgan, L&G and Royal London – and typically short-term loans to banks make up a large part of portfolios. That means that as interest rates rise, payouts should do so quickly as well.

For example, see the Vanguard Sterling Short-Term Money Market Fund (just because the website is clear and the 0.12% fee is low). It has 60% of its assets in bank deposits, with 40% having a maturity of less than one week. The weighted average maturity is just under 42 days. So while the fund has returned 1.75% over the past year (against 1.96% for the Sonia benchmark), averaging the last three payouts suggests a current yield of 3.2% and rising.

Short-term interest rates are now high enough that most money-market funds will pay out more than you can get in interest in any brokerage account.

Keep an eye on the costs of investing

However, you will generally pay some kind of dealing fee to your broker for buying and selling the fund. You’ll also typically pay a platform fee for holding it. These costs will vary between brokers, but you need to work out whether you’d make a meaningful gain compared to whatever interest rate your broker pays. The smaller the amount of cash you hold, the less likely you are to earn more.

Capital at risk

The big caveat is that money-market funds are not capital-protected, while cash deposits are almost completely secure (subject to the risks of the bank they are held in failing, and the limits of the Financial Services Compensation Scheme).

If the fund lends to borrowers who default, you could get back less than you invest. UK money-market funds are supposed to be conservative in terms of where they lend, and the risks are generally thought to be very low, but not zero. It is also possible that during times of market volatility, you might not be able to redeem your investment quickly. That said, all UK money-market funds made it through the severe test of March 2020 intact.

More from MoneyWeek:

• Best easy access savings accounts – March 2023
• The best one-year fixed savings accounts - March 2023
• Best savings accounts – March 2023
• NS&I Premium Bond prize fund rate jumps to 3.3%

Choosing the best investment platform for your money can be tricky.

Whether you want a general investment account, ISA or self invested personal pension (SIPP), you need to look at the investment range, customer service, functionality (such as whether it has an app), and of course, the fees.

Comparing platform charges is challenging and sometimes downright bewildering, but they are important as they can eat into your returns.

Every platform has its own set of fees, which may depend on the size of your investment portfolio, and how often (and which assets) you trade. Some charge initial fees, annual fees, and/or exit fees.

While most platforms charge percentage fees, a few levy flat fees. This makes comparisons even harder.

Is a fee that is charged as a percentage of your portfolio, or a fixed flat fee, a better choice for you?

We investigate the flat versus percentage debate, and reveal some fascinating cost comparisons.

Which investment platforms charge flat fees?

Most investment platforms charge an annual fee that is expressed as a percentage of the investor’s portfolio. So if you have £50,000 in an ISA, and the annual fee is 0.45%, you would pay £225 a year.

The more you have invested, the greater the fee.

In contrast, a few platforms charge flat fees. Interactive Investor has several different price plans, which all have flat fees. The cheapest is £59.88 a year and can be used for portfolios containing less than £50,000. Trades cost £3.99. Above this level, the cheapest flat fee is £143.88 a year. The platform’s fees are changing from 1 February 2026 and the cheapest plan will start at £5.99 per month or £71.88 a year.

Interactive Investor argues that its fees are “flat and predictable” and can be significantly cheaper than its competitors that charge percentage fees.

Meanwhile, Scottish Widows Share Dealing, formerly IWeb, which is owned by Lloyds Banking Group, doesn’t charge any annual or ongoing fees. Trades cost £5 each.

Halifax Share Dealing charges £36 a year for a stocks and shares ISA and share dealing account, plus £9.50 for each trade.

Platforms that charge percentage fees

The rest of the big investment platforms charge percentage fees. Some have a tiered scale, so the percentage fee drops the more money you have in your account. It may also vary depending on what you invest in.

For example, Hargreaves Lansdown charges 0.45% on ISA portfolios worth up to £250,000. Any money between £250,000 and £1m has a fee of 0.25%, between £1m and £2m attracts a fee of 0.1%, and anything above £2m has no charge.

These fees apply if you’re investing in funds. If you’re buying shares, the fee is 0.45% regardless of the size of the portfolio, capped at £45 a year.

AJ Bell has a similar model. It charges 0.25% for ISA portfolios that only invest in funds, reducing to 0.1% on the value between £250,000 and £500,000, and then no charge for money held above £500,000.

For portfolios that invest in shares (including investment trusts and ETFs), the annual fee is 0.25%, capped at £3.50 a month.

We told you platform fees were complicated and tricky to compare!

Cost comparisons

We asked the consultancy The Lang Cat to crunch the numbers for us to try and show a meaningful comparison of the costs of different-sized portfolios.

Will a platform with a flat fee or a percentage fee be crowned the cheapest?

The below table shows 14 popular platforms, and compares portfolio sizes ranging from just £5,000 all the way up to £1m.

The costs are for investing through a stocks and shares ISA on the platform for one year, including ongoing platform fees, any additional wrapper charges, opening fees, and the fees for making 12 regular investments in funds.

Source: The Lang Cat

So you could build and run an investment portfolio of any value for free with Scottish Widows Share Dealing, assuming you make 12 regular investment trades in a year through its ISA. Regular investing is free on the platform but you will be charged £5 for any other UK trades.

You will need to weigh this up against the research tools and recommendations as well as the functionality that other higher cost platforms can provide.

Liz Evans, market analyst at The Lang Cat, said: “Price alone isn’t a proxy for suitability, nor is it even a substitute for value for money.

“That’s a personal decision and there are a number of other factors to bring into the equation. How much stock you place in a household name, how much help you need picking investments, even intangibles like the general look and feel of the user interface and how the organisation communicates towards you can all be important matters. But it’s personal.

“On the pure arithmetic side of things, specifically how much money you have to set aside regularly, the investment type you plump for and the destination wrapper choice are all factors too.”

What’s the best fee structure for large portfolios?

Clearly, the larger the investment portfolio, the higher the fee will be with a platform that has a percentage-fee structure.

Some platforms have sought to reduce the impact of a percentage fee on big portfolios with lower percentage fees for large values.

However, the table shows that investors with ISAs worth £100,000 or more could pay hundreds - or even thousands - of pounds in extra charges for choosing a percentage platform rather than a flat-fee competitor.

At £100,000, an investor could pay just £36 with Halifax, or £450 with Hargreaves Lansdown. At £250,000 the cost of choosing Hargreaves rises to £1,125 a year, then £1,750 for portfolios of £500,000, and then £3,000 for £1m portfolios. Meanwhile, the cost of having your ISA with Halifax remains at £36 a year, even for a £1m portfolio.

According to Interactive Investor, which is the second-cheapest flat-fee platform for smaller ISA portfolios, a percentage-fee platform can be more than 10 times more expensive for accounts worth £500,000 than its own platform.

It says the difference between flat fees and percentage charges can be “jaw-dropping”. It adds: “The more your pot grows, the worse the percentage charges can bite."

What else do I need to consider?

While fees are an important factor when picking a platform - high fees can seriously erode your returns over time - they should not be the only factor.

For example, Vanguard may be cheap for small ISA portfolios, but investors can only choose from Vanguard funds. If you chose a slightly more expensive platform like Charles Stanley Direct or Halifax Share Dealing, you would have a much wider investment range.

Meanwhile, you may wish to consider other features, such as whether the platform has an app, whether it offers other products like a Sipp or a junior ISA, and whether it pays interest on cash balances.

Jason Hollands, managing director of Bestinvest (which charges a percentage fee), argues that while investors care about fees, “their real focus is value-for-money”.

He says investors should look closely at the service they receive for the fees paid. For example, with Bestinvest, customers receive free coaching sessions with qualified financial planners and “a wide range of low-cost managed portfolios that are substantially cheaper than many so-called ‘robo-advisers’.”

Despite difficult market conditions for investors, the number of ISA millionaires has increased.

According to fund supermarket interactive investor, as of January 2024 it had a record 1,001 ISA millionaires on its platform - an increase of around 17% compared with the same period last year when it recorded 852.

Plus, Hargreaves Lansdown told MoneyWeek there are currently 836 ISA millionaires on its platform- up from 573 in the previous year. Investment platform AJ Bell also saw a 119% rise in the number of ISA millionaires on its direct-to-consumer platform in 2023. 

ISAs are undoubtedly a great tax-efficient way to save and grow wealth, but for those pumping their long-term savings into stocks and shares ISA, the tax benefits that come with the tax-wrapper are significant and the power of compounding is stronger. You may also be interested in our article on ISAs vs savings accounts.

The average age of an interactive investor ISA millionaire is 74, compared with an average age of 57 for the overall ISA cohort.

Most of the ISA millionaires will have started with what was known as personal equity plans (PEPs) which transitioned into ISAs.

We look at what these long-term ISA holders invested in to help reach the millionaire milestone.

What do ISA millionaires invest in?

Investment trusts account for the largest share of the ISA millionaires’ portfolio on ii’s platform, accounting for 41.9% of their portfolio, compared to around 11% of funds.

Direct equities account for 37.8% of portfolios, followed by 4.1% for exchange-traded products.

When it comes to cash, ISA millionaires are holding close to 50% less in cash, suggesting that ISA millionaires are studiously avoiding the long-term effects of cash drag.

ISA millionaire portfolios on AJ Bell follow a similar pattern. “AJ Bell ISA millionaires have shown a preference for investing in individual shares rather than funds, with 75% of their portfolios sitting in stocks (including investment trusts),” says Dan Coatsworth, investment analyst at AJ Bell.

This is how ISA millionaire’s holdings compare to all ISA holdings according to ii: 

Myron Jobson, senior personal finance analyst at interactive investor comments: “Our data shows that the ISA millionaire status is typically achieved through a well-diversified portfolio rather than cherry-picking risky bets.

“Millionaire ii ISA holders also tend to be early bird investors, giving their money more time in the market to work hard for them. 

Jobson puts the success of ISA millionaires down to “time, patience and the magic of compounding returns,” and believes it's the “not-so-secret strategy to becoming an ISA millionaire.”

“Admittedly, you’d need to be able to afford to invest significant sums, but the principal of patience and diligence is also enriching for those investing more modest amounts.

Although equities also played a big role, for many of the ISA millionaires, the ultimate overseas exposure was via global investment trusts, with Alliance Trust being the most held overall stock amongst ISA millionaires, and Scottish Mortgage in second place. 

When do ISA millionaires invest?

You know the saying - ‘the early bird catches the worm’ - well in the case of ISA millionaires, it really is about getting in early at the start of the tax year.

ISA millionaires are almost as likely to be tax-year early birds as they are to join the last-minute ISA rush before the tax year ends.

Around 40% of total 12-month subscriptions from ii ISA millionaires were added between 6 and 30 April 2023. 

AJ Bell’s Coatsworth advises: “The trick is to start as early as possible with what you can afford to invest. Increase your contributions as you get older, such as when you get a pay rise.” 

ISA millionaire’s top picks

These are the top 10 investments made by ISA millionaires on ii: 

“The list provides exposure to the US and the latterly rampant big technology stocks in particular through holdings of both Alliance Trust and Scottish Mortgage,” says Richard Hunter, head of markets at interactive investor. 

AJ Bell data shows Scottish Mortgage also sits near the top as one of the most popular investment trusts for ISA millionaires on its platform. City of London investment trust is also a popular choice among AJ Bell ISA investors. 

How to become an ISA millionaire

You already know building wealth is a long term strategy and to become an ISA millionaire, you must be consistent and patient.

For anyone starting out now and investing the full £20,000 annual ISA allowance each year with a 5% annual return (excluding fees), they could hit the million pound mark in 25 years.- £1,002,269.08, to be exact.

If your investments grew by 7%, you could achieve £1,048,722.82 in 22 years.

And if your investments saw annualised returns of 3%, it would take 31 years to reach £1,030,055.17.

These are just projections, as investments can go down as well as up - the key thing is to invest regularly to take advantage of pound cost averaging.

It’s also a good idea to spread your risk through various investments. “Having a diversified portfolio is good practice for any investor, including those aspiring to be ISA millionaires,” says Coatsworth. 

“If something goes wrong with one of your holdings, you’ve got the rest of your portfolio to hopefully act as a cushion to minimise the pain.

“Diversification can involve investing in different industry sectors, geographies and asset types. For example, a diversified portfolio might have exposure to shares, funds and bonds from around the world.”

Cost is one of the biggest factors when it comes to picking an investment platform. Get it wrong and it could significantly dent your investment returns.

For most DIY investors, the option is to either go for a percentage based fee model, where you are charged a percentage based on how much you hold in your investment pot, or a fixed flat fee.

For most small investors with a nest egg of less than £50k, a percentage based fee provides better value, but for anyone making regular trades or with a higher amount, a flat fee could work out better.

At MoneyWeek, we have always said keeping your costs down should be a priority when thinking about how to approach investing.

But, interactive investor claims its new offering, which comes with a flat fee of £4.99 a month, provides the best value for investors stashing away £30k or less. Available from tomorrow (1 February), we look at whether the offering really is the ‘gamechanger’ the platform claims it to be.

How does interactive investor’s £4.99 a month product work?

The product - Investor Essentials - means investors will only pay the fixed fee for the platform to manage their investments. It is aimed at those with small amounts of £30k a or less.

The new flat fee subscription service is in addition to its £9.99 fixed fee offering - but the £9.99 fee offers those with larger pots with better value. But now those with smaller pots can take advantage of the same investment options at half the price.

The subscription will allow investors access to a wide range of options, including the top funds to invest in, but also investment trusts with high yields and UK shares for £59.88, a year.

UK and US trades will cost the same at £5.99 a pop.

If investors go above the £30k threshold, they will be switched over to the £9.99 plan.

Research by interactive investor found that 67% of investors prefer a subscription flat fee due to simplicity and transparency.

How does interactive Investor’s offering compare to rivals?

Using the new offering, if an investor makes two ad-hoc fund trades in a year and two equity trades, as well as regular investing into one fund per month, and one share (or investment trust) per month the fee would be £83.84 a year.

Under the same criteria, if you hold £10,000 with Hargreaves Lansdown’s investment platform, the annual fee is £86.90 a year. But if you hold £50,000 that amount increases to £199.40 a year.

AJ Bell’s YouInvest would cost you £83.90 a year if you have an investment pot of £10,000 but £163.40 a year if you hold investments worth £50,000.

Fidelity personal investing’s platform fee is cheaper if you hold £10,000, costing you £68 a year. But the cost of investing £50,000 would lead to a charge of £208.

However, it is worth noting that there are other platforms targeting smaller investors and could be cheaper for lower fees.

AJ Bell’s Dodl, for example, costs 0.15% a year (based on your total fund value), though fund options are limited. Freetrade costs £4.99 for a stocks and shares ISA for up to £10k.

Ultimately, it comes down to knowing what you want to invest in and working out which option will work out better. If you have £15k or less, it may still be worth shopping around to nail to most cost-effective option.

What does the subscription include?

ii’s Investor Essentials includes:

• £4.99 flat fee, paid monthly by direct debit
• Free investing for funds, investment trusts and popular UK shares
• £5.99 charge for UK and US individual equities
• A stocks and shares Isa and trading account under the subscription
• Access to the widest range of investments and well-known brands
• Educational content
• An easy-to-use platform
• Quick start range for beginners

The service does not include:

• Free monthly trades
• Junior Isas or self-invested personal pensions

Interactive Investor’s new low-cost pension plan could kickstart a price war in the sector. The investment platform is launching Pension Builder, a new self-invested personal pension (Sipp) for which savers will pay a flat fee of £12.99 a month, however much their fund is worth.

Flat fees tend to work out better value than percentage-based charges on larger pension funds. But Interactive Investor’s fee is low enough to be competitive for smaller funds, too. Analysis from Compare the Platform suggests that on a pension fund of £50,000, only Fidelity Personal Investing and Vanguard would work out cheaper – though the latter offers a more limited choice of underlying investments. On pension funds of £100,000 or more, Interactive Investor moves into the lead.

Interactive Investor’s new pension is designed to appeal both to savers just beginning with pensions and to those transferring from rival platforms. For the latter there is an opportunity to save money straight away, while for first-time pension savers, the £12.99 monthly fee will work out more expensive than some plans in the early years, before saving money later on.

Game changers

The launch exemplifies how investment platforms have changed the game for savers opening individual plans rather than (or as well as) contributing to a work-based pension scheme. Most platforms offer access to the same range of underlying investments – basically any collective investment fund, as well as direct equities – and functionality such as research and planning tools. What you’re looking for is the cheapest deal for your level of savings.

Missing out on the best pricing can have a large impact on your pension’s value. Each pound paid in charges is a pound you can’t invest or earn compound interest on.

Research from analyst Lang Cat, based on a 35-year-old with a £100,000 pension pot who invests £10,000 a year for 30 years and earns an annual return of 5%, suggests the cheapest plan today would deliver a final pension value of £1,191,737. At more expensive providers, the same saver would end up with up to £53,000 less due to charges.

Making comparisons between platforms is not straightforward. They charge in different ways – some favour flat cash fees while others charge a percentage fee. These platform fees are not the only charges to consider. There will also be charges to pay when you make new investments or change your portfolio, and for other services. Like many plans, Interactive Investor charges for things such as dividend reinvestment.

Comparison sites such as Compare the Platform or Money to the Masses allow you to make comparisons according to your circumstances – how much your pension fund is worth and how you plan to invest, for example. This should give you a better idea of the best deal for you, instead of just headline charges.

Nevertheless, Interactive Investor’s new launch is a welcome addition to the pensions marketplace, providing stiff competition to the likes of AJ Bell, Fidelity and Vanguard. It should also give savers pause for thought. Alongside the launch, Interactive Investor consumer research found only 12% of savers look carefully at pension charges. The rest are at risk of blowing an unnecessarily large hole in their pension funds.

Gas prices are up, oil prices are up, food prices are up. If you’ve noticed all this you aren’t alone; the Bank of England sees inflation hitting 4% by the end of the year and in a recent survey from Interactive Investor, 84% of people said they have noticed prices rising and 55% (quite rightly) view rising inflation as one of the biggest threats to their personal finances (the other 45% clearly aren’t concentrating…).

The key thing to know then is whether our current inflation is transitory or not. Central bankers insist it will be gone by next year – most economists agree. For them the supply crunches – of everything from semi-conductors to gas to workers – are merely due to post-pandemic reopening pressures. They will work their way through the system (quite quickly) and that will be that.

They might be right – and, barring the fact that we would like to see wages rising, we mostly hope they are. However, we aren’t sure at all that they are right. And we aren’t altogether sure they are sure either – the inflation numbers have surprised on the upside just a few too many times for comfort. With monetary policy still very loose, the labour market very tight and pressure on governments to keep spending up, we wouldn’t be surprised if they kept doing so. So if you haven’t started to try to inflation-proof your portfolio you might want to do so.

Possibly the most straightforward way to do this, says GMO’s James Montier, is to think of it not in terms of trying to track inflation (via index-linked gilts, say), but to look instead for a store of value that will preserve your purchasing power over the long term. For him, that’s equities – they aren’t a hedge against inflation as such (prices could fall), but “they are the businesses that charge prices and pay wages, so their cash flows should be real if these two elements are roughly matched, and thus they act as a store of value in the longer term”. That said, there is something better than just equities – “cheap equities”. Find these and you will effectively be getting your “inflation insurance at a discount”.

Andrew Williams of Schroders mostly agrees: equities offer “decent protection” against inflation, he says (although anyone trying to build wealth in the 1970s will remember it as a struggle). But a far better predictor of performance than inflation levels is still starting valuations. Good news then that “valuation dispersion... that is, the gap in fundamental valuation between the most and the least highly rated shares – remains at extreme levels”. So buy value stocks. And that cheap insurance you need? It’s very much available. In this week's magazine, we look at the UK market. And this week’s podcast is with top value investor Gary Channon (moneyweek.com/podcasts). We also look at an investment trust invested in Canada with some energy exposure and a strong income focus.

Interactive Investor has an idea for its worried clients: the Capital Gearing Trust (LSE: CGT), which we like too. This has two objectives: to preserve capital over any 12-month period and to deliver returns well in excess of inflation over the long run. Both good. Finally, Investec suggests JP Morgan Global Core Real Assets Trust (LSE: JARA). It is heavily invested in real estate, infrastructure and transportation, all of which should give some inflation protection. The yield is around 4.5% – buy now and hopefully even if inflation hits 4%, you will still be making a real yield (just).

The number of investment company IPOs (initial public offerings) has diminished over the years. However, the quality of these IPOs has increased, and is supplemented by a growing number of “secondary” issues (additional blocks of shares), usually offered at an attractive discount to the share price.

Sometimes these share offerings are available to direct investors through platforms such as Interactive Investor and Hargreaves Lansdown. But the private investor is often shut out, even when they are already shareholders.

The Stock Exchange imposes rules on “pre-emption rights” (the obligation to offer existing holders the first bite of the cherry) in secondary issues. But these restrict the terms of share issuance to non-holders rather than give holders automatic preference. These restrictions can be loosened by shareholders at large in a general meeting ie, by the big shareholders.

The good news is that small investors can now get around this.

Buying investment trust IPOs or share issues used to be a bad idea

The justification for shutting out small investors from secondary offerings is the additional costs involved in an offer to investors not classified by the authorities as “sophisticated.”

Less talked about is the reality that exclusion confers an advantage on professional wealth managers and investment funds, who get privileged access at a more advantageous price, helping them to justify their charges to clients.

Fortunately, there is a way into this cartel. PrimaryBid provides a platform which enables registered small investors to subscribe to new and secondary issues. They collect all the applications through their website and make a single application in the offering.

PrimaryBid does not have an automatic right to be included in the placing – but it would be very hard to justify shutting them out. You can learn more and sign up at www.PrimaryBid.com.

Of course, that doesn’t mean that all new offerings of investment trusts should be bought. Indeed, in the past, the presumption was rather the reverse. Share offerings accompanied temporary fashions in specialist areas such as privatisation, Latin America and Lloyds insurance.

When the outlook dimmed and the fashion abated, investors exited, the share prices sank to a discount to net asset value (NAV) and, in time, the trusts often disappeared. The larger the issue, the more wary investors learned to be – as exemplified by the £800m issue in 2010 of Woodford Patient Capital Trust.

But such scepticism is no longer justified. The average discount of investment trusts has fallen to very low levels, so there is much more secondary issuance, almost always at a premium to NAV. Some of this comes from “tap” issuance in the market according to demand, and some of it from the formal offering of a larger block of shares – perhaps to finance an acquisition for an infrastructure, renewable energy or property company.

Meanwhile the quality of IPOs has improved. Some of the “alternative” non-listed equity trusts have fallen by the wayside, but many have prospered and expanded and a few are approaching a size meriting FTSE 100 inclusion.

More significantly, some of the equity new issues have been hugely successful, notably Baillie Gifford American, Smithson, Schiehallion and Chrysalis, even when large (Smithson raised £822m in 2018). These trusts are (as of writing) trading respectively at 242%, 63%, 80% and 96% above their issue prices.

The quality of opportunity is getting better

To some extent, the reduced number of IPOs reflects saturation (investors would prefer the existing trusts to expand rather than back a new one) and to some extent, there is a size constraint, with an IPO below £75m unlikely to be economic.

But it also reflects an increasing number of trusts moving from one manager to another, whether on the same mandate (Temple Bar), through a merger (Perpetual Growth & Income) or on a changed mandate (Witan Pacific to Baillie Gifford China).

Last year, there were just eight investment company IPOs, raising £1bn, down 21% from 2019. The average since 2008 is 15 IPOs, raising £2bn a year, and the peak was in 2006 with 92.

But IPOs accounted for just 12% of the total of £8.4bn raised which, despite the market turbulence, was only 11% down on 2019. More surprisingly, total issuance by equity funds rose from £2.2bn in 2019 to £3.4bn, while “alternative” issuance fell from £7.2bn to £5bn.

Of the £7.4bn of secondary issuance, £3.2bn, including nearly all the equity issuance for the year, was “tap” issuance in the market as opposed to formal offerings at a fixed price. “Tap” issuance does not discriminate against the small investor to the same extent, as the price is much closer to that at which existing shares are traded in the market. By keeping the premium at which the shares trade down, it even helps the small investor get a better deal.

IPO issuance is expected to be muted in 2021 although a couple are on the slipway. But secondary issuance should be high, assuming that markets are less volatile. Many trusts are trading at a premium and ambitious to grow while appetite among investors is strong.

Broker Numis points out that more than half of new issues put out in the last ten years are trading at or near to NAV, while those on larger discounts have not necessarily performed poorly in absolute terms.

According to Numis, while 255 of the 326 funds launched between 2000 and 2010 no longer survive, 124 of the 163 launched since 2010 have survived with their original mandate intact. It looks likely that, by 2031, the attrition rate of the 2010-2020 vintages will be a lot lower than of the 2000-2010.

While the best strategy for IPOs, secondary offerings and for trusts changing managers and/or mandates was once “wait and see” before investing, investors should now be much more open-minded.

Which stockbroker or fund supermarket do you use the most?

Hargreaves Lansdown is by far the most popular online broker in the UK. More than 40% of MoneyWeek readers say that it's the provider they use most often. Barclays Stockbrokers, the second-biggest provider, lags a long way behind and will shortly fall to third when Interactive Investor and TD Direct Investing merge. AJ Bell Youinvest has been growing quickly.

Articles about picking online stockbrokers or fund platforms tend to focus on comparing fees, but feedback from our readers suggests that costs are not the biggest priority for many of you. As evidence of this, consider your feedback on Hargreaves Lansdown, the biggest UK broker, in our reader survey. It scores well on all the criteria we use for rating brokers, except for costs. Readers consistently say that the firm is expensive. And it is compared to many of its peers but it offers a high-quality service, which is presumably why customers are prepared to stay with it.

For the most part, we agree with your conclusions. Fees are just one part of the equation. Other factors such as quality of customer service, range of investments available and the stability of the firm are also important. The complication when picking a broker is that there isn't a strong relationship between how much you pay and what you get. Hargreaves Lansdown mostly does a good job, but so do many cheaper firms. Conversely some pricey ones are much worse. To make matters worse, the way fees are charged varies greatly between brokers, which can make it difficult to see if you're getting a good deal.

How much will your Isa cost you?

Traditionally, brokers aimed to make money from dealing commission on shares, from ongoing commission paid to them by fund firms ("trail commission") on funds and from other sources such as the interest they earned by parking clients' cash balances in the bank. Explicit administration charges or custody charges for holding shares were not common for Isas.

That's now changing, for a number of reasons: costs have risen, trading volumes are weak, trail commission was banned in 2014 and interest rates are extremely low. So most providers have now introduced some kind of admin fee or custody fee. Such fees are usually either levied as a percentage of the value of the assets you hold with them or as a flat fee. As a general rule, percentage-based fees are better for small accounts, while flat fees are more cost-effective for larger accounts (although many brokers cap their percentage fees once it reaches a certain level).

Dealing charges may vary depending on what kind of investment you buy. Some providers do not charge for dealing in open-end funds (unit trusts and open-ended investment companies or Oeics). These providers will then typically charge a percentage-based custody fee for these funds. The vast majority of providers will charge you a dealing fee to buy and sell shares, investment trusts and other products that are not open-end funds, but will either charge no custody, a capped custody fee or a fixed admininstration fee (which may be waived if you trade a certain amount).

The dealing fees for securities priced in sterling typically vary from as little as £5 to as much as £15 per trade. Some providers offer lower trading charges for frequent traders, but keep in mind that trading so often generally has a negative effect on your long-term returns. For international stocks and even often for UK-listed securities priced in currencies other than sterling most brokers will levy a foreign currency conversion charge which may be 1% or more of the value of the trade.

You'll also want to take into account other factors, such as how well the broker's platform works and how good the firm's customer service is. Your priorities here are likely to depend on how you like to trade. If you prefer to trade over the phone, you will want a broker that has a good telephone broking team with decent opening hours. You'll also want to pay attention to the cost of telephone dealing, as this is often more expensive than online dealing. If you prefer to trade online, you are likely to want a provider whose website is easy to use.

The financial stability of your broker is also important. The Financial Services Compensation Scheme for investments will pay up to £50,000 in compensation (per customer per firm) if your broker goes bust and is unable to hand over money or investments kept with them. In almost all circumstances, your broker should be keeping its clients' cash and investments separate from the firm's assets, which means that they should not be available to creditors in the event of financial collapse and will eventually be returned to you.

However, sometimes when a broker fails, there are problems with this "ring fencing" or "segregation of assets" and it turns out that client assets particularly cash are missing due to negligence or fraud. So the FSCS is an important safety net. If your account is large and the £50,000 FSCS cover doesn't seem that much, you will want to look into the financial strength of your broker carefully and perhaps split your savings between more than one firm.

Popular brokers and their costs

So with all that in mind, let's catch up on who topped our reader poll. Hargreaves Lansdown came first last year and does so again this year. High scores for service are let down only by the worst ranking for costs among the major brokers. The Share Centre came second, up one place from last year. Its main negative points were a smaller (though still reasonable) range of investments and a lower ranking on financial strength (the latter essentially reflects our readers' subjective perception of how big, stable and established a company is in this case, The Share Centre is a far smaller firm than Hargreaves Lansdown, although it has been in business for more than 25 years and is listed, so investors can easily monitor its financials).

AJ Bell Youinvest slipped one place from second to third, which may have something to do with recent fee changes (it introduced a custody fee for shares in its dealing account and Isa for the first time). Like Share Centre, Youinvest ranked lower than Hargreaves Lansdown on perceived financial strength, reflecting its lower profile (the company is privately held, with investors including Neil Woodford, but publishes detailed financial reports).

Interactive Investor and TD Direct Investing, which have announced they will be merging in the near future, followed close behind. Interactive Investor's worst scores were for customer service and administrative efficiency; it also scored lower on perceived financial stability, reflecting the fact that it's owned by a private-equity fund rather than a high-profile company. TD Direct Investing, which is currently owned by Canada's Toronto Dominion Bank, scored acceptably on most categories, but ranked lower on fees.

Lastly, we found a curious quirk in the results for Halifax and iWeb. These are the same service, with the same owner (Lloyds Bank), but different fees (iWeb is far cheaper). iWeb users gave the firm top scores on costs but they also gave it much higher scores than Halifax in most other categories. In short, customers who are getting a very cheap service seem happier with this broker but those who are paying more had some reservations about the quality of customer service and the range of investments. Taking iWeb's scores alone, it would have topped the poll but if we consider the Halifax and iWeb scores combined, it would have ranked in line with AJ Bell Youinvest, Interactive Investor and TD Direct Investing.