Fund platform launches low cost £4.99 a month service for small investors - we see how it compares

Aimed at investors with small investment pots of £30k or less, fund platform interactive investors has launched a low costs service - but is it any good and how does it compare to rivals?

(Image credit: Getty Images)

By Nicole García Mérida

published 31 January 2023

in Advice

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.

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

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.