Revolut launches free stock trading: should you invest?

Revolut has launched commission-free stock trading, allowing customers to invest in 300 US-listed stocks on the New York Stock Exchange and Nasdaq - but is it too good to be true?

The London-based company made the service available to a select number of Revolut Metal card customers at the end of July and will eventually roll out the platform for all its customers to use.

Revolut joins an emerging market of online brokers such as eToro, Freetrade and Trading 212, that also offer commission-free trades.

However, commission-free trading, like any form of investing, doesn't stop you losing money, and you'll need to watch out for membership fees and taxes.

Here, we take a look at how Revolut's share trading platform will work and whether you should invest through it.

What is Revolut?

Revolut is a digital-only banking app launched in 2015.

It offers three types of account, all of which come with a prepaid MasterCard that lets you spend abroad in more than 150 currencies and exchange money in 29 currencies in the app.

Customers can opt for a free standard account, the Revolut Premium account for £6.99 a month or the Revolut Metal account for £12.99 a month.

• Find out more: challenger banks - all you need to know

How does Revolut's share trading work?

All Revolut customers will eventually be able to make free trades, but those with the pricey Metal account get vastly more free trades then the standard and Premium accounts.

Revolut Metal customers will be able to make up to 100 instant free trades in more than 300 US-listed stocks on the New York Stock Exchange and Nasdaq. Customers with standard accounts will only be able to make three free trades a month while Premium customers will be limited to eight.

Any trades made outside of the monthly allowance for any of the accounts will incur a £1 charge and an annual custody fee of 0.01%.

There is no account minimum required to be able to invest and you can buy fractional shares for as little as $1 - useful if you can't afford whole shares in more expensive companies.

Being restricted to only two stock exchanges does, however, considerably reduce your choice of investments. Nor can you use Revolut's platform to buy low-cost tracker funds and investment trusts, which can help diversify your portfolio.

Trading US shares also means you'll have to pay 15% withholding tax on any dividends you earn (you'll need to fill in a W-8BEN form).

As you'll be buying and selling in dollars you'll need to pay attention to exchange rates. All currency transactions are made through Revolut's multi-currency wallet using their exchange rates.

• Find out more: are you ready to invest?

Do you have to be an experienced investor?

Revolut's platform is aimed at investors of all experience levels. Revolut hopes to develop news updates, price alerts, tutorials and guides to assist users with their stock picking and trading decisions.

A Revolut spokesperson told Which?: 'Investing in the stock market has been closed off to ordinary people for far too long, which has led to real problems for consumers as they search for effective ways to make the most out of their savings.

'Younger people, and those who have been priced out of investing, now have the chance to put some of the earnings or savings into stocks and shares, while fractional shares are central to the idea of making trading and investing accessible to more people.'

Stock trading is not necessarily the best approach for new or inexperienced investors, however.

You'll need to spend time researching into the companies you're investing in and keeping an eye on their performance.

Investing only in stocks - rather then building a diversified portfolio - puts you at huge risk in the event of a stock-market downturn.

• Find out more: five tips for new investors

Are investments FSCS protected?

Money held with Revolut is not protected by the Financial Services Compensation Scheme (FSCS). Instead, your money is subject to Revolut's safeguarding terms.

According to those terms any money that you hold with Revolut, will either be:

• Placed into a ring-fenced account which is separate from the company's own money
• Invested in low-risk assets held in a separate account

This means that should Revolut go bust, they have to repay you from the ring-fenced funds before they pay out to others that they owe money.

Neither Revolut's terms nor the FSCS will compensate you if the value of your investments falls.

• Find out more: what is FSCS protection?

How does it compare?

Compared to some of the leading investment platforms, Revolut's offering looks very cheap.

Hargreaves Lansdown, for instance, charges up to £11.95 per order, which can fall to £5.95 for the most frequent investors. Others companies such as AJ Bell, Barclays and Interactive Investor charge between £4.95 and £10 per trade.

These fund supermarkets do, however, give you access to a much wider range of investments and stock exchanges.

Crucially, unlike Revolut these platforms enable you to invest within tax wrappers such as a stocks and shares Isa or a Sipp. This means you don't have to pay dividend tax or capital gains tax when you sell investments.

Some commission-free platforms offer Isas, such as Trading 212 and Freetrade, as well as access to UK shares and funds.

• Find out more: types of investment

Is commission-free stock trading worth it?

Commission-free stock trading platforms, such as Revolut, can serve as a basic introduction to the world of stock picking for people looking to ease themselves in at little cost.

It's important to bear in mind that the service and choice of investments offered by such platforms is much more limited than the leading investment platforms which charge a fee.

If you're just beginning to invest, you should aim for a more diversified portfolio, rather than only investing in stocks.

Check out our guides on investment platforms and how investing works for more information and tips.