Discount broker charges

Sillychuckie

Hi there,
I have not yet used up this years mini equity Isa allowance and plan on doing so shortly.
Thinking of either using selftrade (or possibly HL).

With a 4k limit, I could invest £500 in 8 trusts but I see that Selftrade charge £12.50 per transaction. Does each of these count as a transaction?

Is it a little stupid doing this and then paying 8 x £12.50 (£100) in charges?
Would I be better off choosing a smaller spread (£1000 in each) and only have to pay £50 in charges.

What do most people do who want to put the 4k in the ISA and nothing else? Is it more common to see 4 x £1000, or 8 x £500?
Is there something I am completely missing, because the money seems like a lot to pay?

Thanks.

YorkshireBoy

Going for 8 x £500 funds will indeed cost you £100 in trade costs with Selftrade. However, if this really is the way you want to go, the cost can be offset somewhat by being 'referred' for your account by an existing account holder*.

I recently joined Selftrade and opted for 4 x £1K funds, meaning my investment was £987.50 per fund. Obviously in your scenario, you'll only be investing £487.50 for your £500 cost. If your chosen fund doesn't rebate all of its initial charges via Selftrade, you'll be 'down' still further at the outset.

Personally, I wouldn't do any more than 4 funds at start-up - especially as the next tax year will soon be upon us and you can buy another 4 (different) funds then.

The issue with costs within a Selftrade ISA was raised recently on here when I queried 're-balancing' and its associated costs. In short, to rebalance my 4 existing funds and purchase another fund with the proceeds would cost me £62.50 with Selftrade - and it seems this is way above the costs with other providers. I won't be in a position to re-balance for 2 or 3 years but, in readiness for it, I'm already investigating H-L (after sending for an information pack) for future years contributions.


* Selftrade will pay you (and the referrer) £50. There are people on the referrers board who will also rebate £30 of their share of the referral monies, meaning you'll receive £80 - which will go a long way to covering your start up costs (don't forget though, that you also have a £25 annual ISA management charge - debited at £6.25 per quarter from either your dealing account or via DD from your nominated current account).

Sillychuckie

Thanks for that Yorkshireboy. I was aware of the referal and other ways of bringing the prices down but still wanted to be sure I didnt have my wires crossed.
It is, as it seems to be. An expensive business. (compared to cash isa's. lol).

You say you are investigating H-L, but the savings aren't going to be massively different. Perhaps it is worth it whilst the amounts you have a are low (1k in each max, with rebalancing).. but as they get larger, that 1% could be rather hefty.

I too will now focus on 4 x £1000. As you say, it isn't long before I'd be able to put another 4k away and diversify my portfolio (spreading the risk etc...) further. Thanks again.

gt94sss2

As has been said here, 4x£1000 is more common due to the impact of dealing charges.

However, are you planning to invest in unit/investment trusts?

I ask as Selftrade are a good option for individual shares and/or Exchange Tracker Funds (ETF's) which they allow you to purchase commission free within their ISA's.

They are less competitive on unit/investment trusts though - where you might be better off going with someone like BestInvest

Regards
Sunil

YorkshireBoy

Sillychuckie wrote:

An expensive business. (compared to cash isa's. lol).

It is, but then again, if you're making 20% I don't suppose a 1% charge is too bad. However, if it can be saved, then all the better.

You say you are investigating H-L, but the savings aren't going to be massively different.

I'm not so sure. From an initial chat with them on the phone, a quick browse of their website, and a glance at the pack that arrived this morning, it looks like they could be a good bit cheaper when it comes time to re-balance.

I too will now focus on 4 x £1000. As you say, it isn't long before I'd be able to put another 4k away and diversify my portfolio (spreading the risk etc...) further.

Don't take my word for it - I'm a complete novice! Hopefully we'll get some input from the experts tomorrow - who'll no doubt tell us we've got it completely wrong.

Sillychuckie

Sunil, I haven't quite decided the investment yet but as you say, my final choice of broker would certainly depend on that. It is almost certainly going to be u/i trusts as I dont feel I know enough about ETFs just yet. Maybe I'll try them next year.

Do any of these brokers support 'drip feeding', or would each 'drip' incur a transaction charge? I have left things late this year meaning I'll almost certainly have to just put in the 4k in bulk, but I'd rather be putting in £300 a month or so for next year (ironing out market movements even further).

As you say Yorkshireboy, more advice is bound to follow. I'm out all day tomorrow (and monday) so forgive me if I go quiet. I'll pay full attention if I get time on tuesday.
Thanks all, and enjoy the rest of your week end.

gt94sss2

ETF's are like tracker funds - they basically track whatever they are set up to track - you can read about them here

If you were 'drip feeding' them via Selftrade you wouldn't have any commission charges when buying them

However, generally, there will be a charge of some sort, each time you trade shares.

If investing small amounts of money each time into shares, its worth looking at the Motley Fool's Sharebuilder product instead (run by Halifax) which only charges £1.50/trade. However, I'm not sure if that price applies within ISA's as well as normal share dealing accounts (Halifax's own branded version charges £5 if its within an ISA instead of £1.50)

If buying an investment or unit trust there is normally an 'initial charge' of between 0-5% of the money you are investing each time, though places like Best Invest or HL may have negotiated some discounts

Regards
Sunil

dunstonh

Fund supermarkets can be cheaper and if you have read the threads of the last few days, they contain some examples to why.

moneyandmountains

Morningstar are running a two part article on ETFs.
For the first part see https://www.morningstar.co.uk

Ian_W

Sillychuckie wrote:

An expensive business. (compared to cash isa's. lol).

Perhaps you ought to look at it a different way, like I do. Having maxed out the mini cash ISA your £4K would be in a best paying non-ISA account earning maybe 5.5% or chasing regular savers at a bit higher rate. Either way, unless you're a non-tax payer, you'd be paying at very least a 20% per annum service charge on the interest you receive to Gordon for the pleasure!!

Having looked at it self trade are good for shares but the funds supermarkets or the other sites mentioned in Martin's article are better for funds because of the dealing costs. I've just opened 8 x £1000 funds for me and Mrs W's shares ISA and the IFA I used kindly donated all their initial commission on Execution only and pointed out some discounts that Fidelty Funds Network are offering ATM. Whilst one Fund of Funds cost an intitial 2.25% the others were <1% and several had no initial charge at all. As they're managed the annual charge will be between 1.5-2% but if they perform no worse than the last 5yrs [including the crash] then they certainly have the potential for double figures returns. Of course whether they will are not remains to be seen!

You need to shop around for the best deal for you and do your own research but getting too hung up on charges ignores the fact you're paying them on your cash outside an ISA - it's just that it's called Tax. :eek:

EdInvestor

HL is the cheapest for fund purchases as they don't charge a dealing fee to buy the funds,plus they rebate the initial charge and usually part of the annual fee.

Selftrade usually rebates the initial charge, but not the annual fee, and charges a dealing fee to buy in the first place (except for ETFs in an ISA).
Selftrade is better for share based portfolios and ETFs,though if you have the odd fund or investment trust holding on a long term basis it's not a major expense.

But HL and the fund supermarkets will definitely be cheaper for regular contributions into unit trusts.