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24 May 2022

Could you pay less for your stocks and shares Isa?

Which? reveals the huge savings to be made by picking the right investment platform

With inflation predicted to hit 10% this year, many of us are looking for ways to grow our savings. One way you could beat inflation is placing some money in a stocks and shares Isa. 

Unlike a cash Isa, you'll most likely need to pay for a stocks and shares Isa - whether or not your investments do well.

We've found that the difference in fees between the most and least expensive stocks and share Isa providers can be considerable.

Invest £5,000, and you could save up to £112 a year by going from the most to the least expensive provider (2.24%). Invest £250,000 and that annual saving jumps to £1,101 (0.44%).

And, as you'll be wanting to invest for five years or more to ride out market dips, those savings can really add up.

Here we reveal the cheapest stocks and shares Isa providers. To find out how their customers rated them, and for our Which? Recommended Providers, see our best stocks and shares Isas.

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What kind of Isa should you choose?

An Isa is a tax-free way to save money. You can have one more than type of Isa and you can put up to £20,000 a year in any of them. 

There are several different types. A cash Isa works much like a traditional savings account, and there are cash versions of Lifetime Isas and Junior Isas.

Stocks and shares Isas work a little differently, as do stocks and shares Lifetime Isas and Junior Isas.

Once you've opened these Isas, you'll need to decide which investments you'd like your money to go into (though some platforms will do this for you).

You'll pay two sets of fees: to the stocks and shares Isa provider, and to the managers of any investment funds or investment trusts you hold.

Can you afford a stocks and shares Isa?

Stocks and shares Isa fees are paid by selling a small portion of your investments, so you won't need to set aside money for them.

However, some platforms, like AJ Bell Younivest, will ask for a minimum investment of £500 before you can open a stocks and shares Isa. Others like Moneybox will let you open one for just £1.

Before you invest, you need to ask yourself whether you can afford to take the risk that your investments will go down as well as up. 

It’s generally advised you have at least three to six months’ cash in a savings account before you start investing. To find out more about how much risk you can afford to take on, check out our guide on investment risk

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Which platforms are cheapest?

The cheapest platforms for you depends on how much you have saved and what you want to invest in. 

Investors with smaller portfolios - less than £50,000 - will usually be better off choosing a platform with a low percentage-based charge. 

For example,  it costs 0.15% a year for Vanguard's stocks and shares Isa - which works out at just £15 a year for a portfolio smaller than £10,000 (not including fund charges, approximately £20 extra). The most expensive platform for the same-sized portfolio charges more than ten times this. 

Investors with larger portfolios - more than £50,000 - will be better off with platforms that charge a flat fee, like Halifax Share Dealing or Interactive Investor, which charge £120 and £112 a year respectively regardless of whether you invest £5,000 and £500,000. 

If you want to trade shares, ETFs or investment trusts, watch out for transaction fees. This is how much a platform charges you to buy and sell shares. Some platforms will lower the charge if you buy shares as part of a regular savings plan. Others won’t charge this at all. 

Are commission-free platforms really free?

Commission-free trading means the platform doesn’t charge you to buy and sell shares.

But these platforms aren’t completely free.

While Freetrade doesn't charge ongoing or transaction fees for a general investment account, you'll pay £3 a month (£36 a year) for a stocks and shares Isa. 

This is still very cheap for large portfolios and the tax savings can also be considerable.

But you'll need to be comfortable with a relatively limited range of investments. It costs £9.99 a month (£120 a year) to upgrade to Freetrade Plus, which grants you access to a bigger selection of stocks and ETFs, as well as letting you limit orders and stop losses - not much cheaper than some of the flat fee platforms we've mentioned above.

Another commission-free trading app, Trading 212, is currently not opening new accounts for UK customers while it deals with a backlog of applications. 

To look beyond headline charges, go to our in-depth reviews of Freetrade as well as more established competitors such as Hargreaves Lansdown, Interactive Investor and AJ Bell Youinvest.

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Key steps to take when picking a stocks and shares Isa provider

  • Look at whether they use a percentage-based charge or a flat fee. This will have a huge impact on costs depending on whether you have a big or small portfolio.
  • Add up the transaction charges. Even if you don't think you'll buy and sell shares, these are still important. Most platforms don't charge you to trade funds but some - like AJ Bell Youinvest - still do.
  • Consider the fund charges. On top of the platform fee, you'll pay fees for the management of the fund.
  • Check customer scores. Better customer service, research tools and investment options could pay off and make high fees worthwhile. We surveyed over 7,000 customers to pick our Which? Recommended Providers.