The cheapest investment platforms for ISAs

In some ways, deciding which investment platform you’re going to use is more important than choosing your shares or investment funds.

And a new study from Which? has pinpointed which investment platforms offer the best value for money, and which are a little on the pricey side.

This article is part of a wider series on investing, covering all areas from stocks and shares to buy-to-let, peer-to-peer and alternative investments. Click here to view the full guide.

Investment platforms – the basics

Essentially, investment platforms are websites that enable you to buy and sell your investments online. Some platforms only allow you to invest in funds, but many platforms also enable you to invest in stocks and shares, and possibly bonds as well.

What’s more, most platforms also allow you to manage your tax-free investment wrappers online – typically a Stocks & Shares ISA or a low-cost self-invested personal pension (SIPP).

You can also use platforms to monitor how your investments are doing. And many platforms offer educational content and other useful information.

Choosing the right platform can make a real difference. If you choose the right one, you’ll save money and you’ll also benefit from better functionality and a wider range of possible investments.

There's more on platforms in our Beginner's guide to investment platforms.

Costs

The Retail Distribution Review (RDR), which came into force in 2013, pushed platforms to move away from commission-based charging towards new ‘clean pricing’. In practice, this means that most platforms will charge an annual fee.

If you're using a predominately share-dealing service, this may be payable quarterly or every six months, or you may have to pay every time you buy something instead.

As well as the already-mentioned platform or service charges there may be a management cost for the investments, for example, annual fund charges.

These will be charged by the investment provider, but some platforms have negotiated discounted rates for funds, known as 'clean' or 'super clean' funds.

You should also look out for these charges, which are likely to be hidden in the small print:

• dealing charges, if you think you're going to want to sell shares, for example;

• dividend reinvestment charges, if you ask for any dividends you receive to be automatically reinvested;

• inactivity charges, for not using your account for some time;

• exit charges, for moving your investments somewhere else.

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The cheapest platforms for funds

So what will your investing cost you?

That’s what Which? tracks on a regular basis, comparing the annual costs that will be incurred from using different investment platforms depending on the size of your portfolio and whether you’re investing in funds or stocks and shares.

First, let’s take a look at those investing in funds:

First of all, it’s worth noting the value that Vanguard offers if you are only investing relatively modest amounts, though of course there is a trade-off in that you will be limited to its own funds, so there’s less choice.

However, just as important to remember is the way that the fees change as the size of the portfolio grows.

For example, AJ Bell is in the lower half if you only have £5,000 invested, but as the size of the fund grows, its fees do not increase at the same rate, making it an excellent option if you have more cash put aside.

Similarly, with the likes of Barclays and Fidelity, the fees don’t move much at all as the fund gets bigger, making them a more appealing option for those with larger portfolios.

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The cheapest platforms for stocks and shares

And below we have the same breakdown, this time for investors looking to put their money into individual stocks and shares.

As with funds though it’s worth noting the way that fees can dramatically increase when the portfolio grows in size.

A platform that charges what appears to be a high flat fee can quickly become the best value option as your portfolio grows in size.

Costs aren’t the only consideration

The cost of your investments is obviously a big factor when picking an investment platform ‒ you don’t want to see your returns eroded away by fees and charges.

However, it cannot be the only thing you think about.

Picking a platform means finding one that not only charges reasonable fees, but which also allows you to invest in the right assets ‒ there’s little good in picking a cheap platform, if you then have to sacrifice investing in particular funds or shares that you had your heart set on.

Paying little in the way of fees, but ending up with a mediocre return, is not what any investor is looking for.