ISA charges alert

EdInvestor

Are you saying you can't provide the information? Why not?

As you know I'm a share investor and my broker provides this information as a matter of routine.

dunstonh

If you put 100 quid a month into a cash ISA for 5 years @4% interest p.a, you would get 6,640 at the end.

If you put 100 quid into a stockmarket ISA for 5 years with a 1.5% AMC and it grew @4% p.a. what would you get at the end of the 5 years?

I cant get figures right now as I am in the middle of something and taking a quick breather. I would also doubt we could get them as 4% is not an FSA authorised projection rate. 5, 7 & 9% are the rates to be used on ISAs. I could play around with the figures to get close to 4% but there is little point as your principle is all wrong. You are not comparing like for like.

You are comparing an implicit charged contract with an explicit one. We do not know what charges are being made on the savings account. You could say that a savings account is getting around 7% to the provider making a 3% charge and paying 4% to the account holder. So, what is the effect of deductions on a savings account?

or you could get your own low cost cow and milk it yourself...............

If I have a low cost cow, say from cowdeal, can I post on the forums that having a low cost cow means you have no charges. -

whiteflag_3

If I have a low cost cow, say from cowdeal, can I post on the forums that having a low cost cow means you have no charges. -[/QUOTE]

I presume it will be a High Yield Cow you will be using

dunstonh

whiteflag wrote:

If I have a low cost cow, say from cowdeal, can I post on the forums that having a low cost cow means you have no charges. -

I presume it will be a High Yield Cow you will be using [/QUOTE]

It would have been normally but I prefer a multi-breed cow made from an American spread.

EdInvestor

I cant get figures right now as I am in the middle of something and taking a quick breather. I would also doubt we could get them as 4% is not an FSA authorised projection rate. 5, 7 & 9% are the rates to be used on ISAs.

OK let's do 5%, no problem

dunstonh

I will do one at 5% if you do an effect of charges on the savings account.

marrioa

Sorry to interrupt this passionate debate, but could one of you please give me some advice?

I want to invest £100 ish a month in an equity ISA but have no idea where to start. I know I am better not to go to "tied" companies, but am concerned about the aforementioned charges. Would I be better going to a discount broker, such as Chealsea financial services, who refund the initial charges and also offer a choice of 4 different portfolios targeted at clients' attitudes to risk?

Thanks

cheerfulcat

The article which started this rumpus was focussing on the apparent fact that this product pays the advisor five years' worth of commission up front, repayable if the client stops the regular investments; I would be interested to see what our resident IFAs have to say about that. For the record, I think that it's disgraceful; it gives the advisor every incentive to keep his or her client in a possibly unsuitable product. This is not a swipe at IFAs :A

dunstonh wrote:

I will do one at 5% if you do an effect of charges on the savings account.

You cannot compare a savings/deposit account with a stockmarket investment. With a deposit account the bank is paying the depositor for the use of his or her money; the bank is taking all of any investment risk. In a stock market fund, the investor is taking all of the investment risk and the fund provider and the IFA are taking a cut, without risk ( since the AMC is charged regardless of fund performance ). The returns on stock market investments should reflect the greater risk taken; the higher the charges, the smaller the difference between the risky and the risk-free rate of return. The effect of standard charges is to reduce the rate of return by nearly two percentage points - this is even laid out in the key features documents. As Ed has said before, this reduces the return over the long term by around 30%, thus losing a great part of the advantage of a risky investment.

marrioa :hello:, having said all that, don't let charges put you off; having part of your wealth in the stock market is a good thing and if you can't or don't want to manage it yourself there is no harm in using a discount broker or even a fee-based IFA.

EdInvestor

Having just done the calculations and compared a no charge investment @ 7% growth with a stockmarket one featuring dealing charges and stamp duty, and a standard fund charging 5% initial and 1.5% annual AMC, I am not surprised that DH is too ashamed to give the figures.

Over 5 years the effect of charges on the direct investment in shares would be to reduce your returns by 3%.

The effect of charges on the fund by comparison would be to cut your returns by a whopping 17% - and that's ignoring the normal imposts on dividends.

On a 7k investment, we are talking about a return of 9,818 @7% growth with no charges, 9,582 in stocks (236 quid less) and 8,642 in the fund - 1,176 less than you would get if you paid no charges.

And the longer the money is in, the worse the effect is (it's the opposite with a stockmarket investment because the charges are flat rate).

You can see why some of us prefer to cut out the middlemen.:mad:

whiteflag_3

EdInvestor wrote:

You can see why some of us prefer to cut out the middlemen.:mad:

YOu obviously completely missed the point of the low cost cow posts! :rolleyes: