Isas

Savers could claw back thousands of pounds in fees by making a simple change to their Isa, according to new analysis.

For anybody investing £50,000 or more in a stocks and shares Isa, Hargreaves Lansdown ranks as the priciest provider across the board, research by the Lang Cat, an analyst, found.

Isa millionaires invested in funds would pay £3,000 a year in fees to Britain’s largest platform, compared to the lowest-priced provider, iWeb, which charges just £60.

Making the switch would save a £1m investor £2,940 in fees a year.

When saving for the future, these small margins can make all the difference. Due to compounding returns, the effects of losing out on small amounts here and there can be massively amplified over the course of several decades.

If you paid annual fees of £3,000 for 20 years instead of investing that money, assuming an average annual return of 6pc, you would lose out on a total of £110,357 over the two decades. This highlights how important it is to minimise the fees you pay in a stocks and shares Isa.

Choose a provider depending on your portfolio size

Fees can be charged in several ways – you might pay a set percentage of your overall portfolio size, or a flat amount. If you have a larger portfolio, you will likely want to consider a provider that charges flat fees, rather than percentage-based.

Equally, if you have smaller holdings, a provider that charges flat fees can eat through a higher percentage of your savings. However, some providers prove comparatively expensive no matter the size of your portfolio.

A standard fee charged by stocks and shares Isa providers is a “platform fee”, which you essentially pay them to look after your money. This might be a flat fee no matter the size of your portfolio, or tiered depending on how much you have invested.

On top of a platform fee, you’ll usually have to pay fees when dealing shares or funds, but these might vary depending on which type of investment you are making.

Figures from the Lang Cat show that the cheapest Isa deals for those with a smaller portfolio of £5,000 come from Barclays and Close Brothers, both of which charge £13, equal to 0.25pc.

This is what you could expect to pay annually, assuming investment solely in open-ended funds, making 12 trades over the course of a year.

Barclays charges 0.25pc across portfolios up to £200,000, and Close Brothers AM Self Directed Service charges this fee for portfolios up to £500,000.

As is usually the case with percentage-based fees, these providers are cheaper for smaller portfolios because you’re paying a small percentage of a small sum.

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For larger portfolios, flat fees are far cheaper. iWeb, which is owned by the Lloyds Banking Group, is worth considering if you have a sizeable investment portfolio. It charges just £60 across all portfolios, according to the Lang Cat’s methodology, which is less than 0.01pc when you’re investing £1m. But it is relatively expensive, at 1.2pc, if you have £5,000.

Similarly, Halifax Share Dealing charges £150 across all portfolio sizes, while Interactive Investor’s “Investor” plan costs £144. Both are cheap options if you have a portfolio of £100,000 or more.

What are Isa dealing fees?

Most of the time, you will pay dealing fees to an Isa provider when buying or selling shares. While these can be pricey, some providers lower the fees the more shares you buy.

For example, AJ Bell charges £5 per share trade, which reduces to £3.50 if you made 10 or more share deals in the previous month. Meanwhile, investment app Freetrade doesn’t charge share dealing fees at all, with customers instead paying a monthly subscription fee.

It is worth noting that it is standard practice for Isa providers to charge foreign exchange fees when dealing shares outside the UK.

How can I avoid high Isa fees?

As the fee comparison table shows, choosing a provider that suits your portfolio size is important – but how you invest should also impact your choice.

If you don’t invest in funds and predominantly buy shares, some providers become more competitive. While Hargreaves Lansdown charges high fees for those investing in funds, making it the most expensive option in our table, its 0.45pc charge is capped at just £45 per year when you invest in shares, ETFs or investment trusts within an Isa.

A spokesman for Hargreaves Lansdown said: “Our clients tell us they highly value the full-service offering: the security of a trusted brand, the breadth of proposition and wide range of investment choices as well as access to our quality and personal client service.”

When choosing an Isa, compare the fees you will be likely to pay for your preferred method of investing. If you’ll mainly buy shares and ETFs, choose a platform that charges low fees for those services – you don’t need to worry too much about fund dealing fees.

Furthermore, fees are important, but not the be-all-and-end-all of an investment platform.

You may also receive financial advice or share tips from a platform you use, and this may be worth heftier fees in your eyes. Make sure to consider all of an investment platform’s offerings you are likely to use when comparing fees.

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