When it comes to investing your hard-earned cash, the cost probably doesn’t come into your head. And yet, the two things that will make the biggest difference to the size of your investments in the long run are fees and asset allocation (that’s how your portfolio is invested across different assets, sectors and regions). So boring as it might sound, fees really do matter.
Starting out
But if you have no money, where do you start? Most providers don’t make it easy for novice investors but that’s beginning to change. A month ago, interactive investor (ii), the UK’s second largest investment platform introduced Investor Essentials, its cheapest account ever. For a flat fee of £4.99 month, investors benefit from a simple, pared-down version of interactive investor’s most popular service at half the usual £9.99 fixed price.
The new Investor Essentials account comes with caveats. It’s designed for novice investors so you can only invest up to a maximum of £30,000. If you’re fortunate to have more than £30,000, then this isn’t the account for you, but if you’re thinking about how to save and invest, like many people in their 20s and 30s, then this will be right up your street.
The Investor Essentials account doesn’t include interactive investor’s Self-invested Personal Pension (Sipp) but you can focus on maximising contributions in your workplace pension until you’re able to start a personal pension too. (I know, boring, right? but necessary.) So, overall this is a cracking deal for novice investors. When you’re ready to start a personal pension, interactive has also introduced a low-cost Pension Builder service that costs just £12.99 a month. Another steal.
Flat fees v percentage fees
Why does this matter? interactive investor is the only platform to charge a flat fee regardless of how much you have invested with them. That means the more you have the cheaper it works out. Investors with large pots benefit the most of course, so mindful of novice investors, interactive investor introduced the Investor Essentials account to make it more attractive to people starting out.
Other platforms charge a percentage of your investments. That means, the more you have, the more they charge. As a result, these platforms have tended to focus on people with money. However, all of sudden, some are changing tack. Hargreaves Lansdown, the UK’s largest DIY platform and FTSE 100-listed investment behemoth, has also slashed prices. From Monday 13th March, it has cut all fees from its Lifetime and Junior ISA accounts to ‘encourage young people to increase their savings’.
It’s not a major cut and it’s focused on children and young adults saving for home deposits, but it’s a huge step in the right direction. If you’re an existing HL customer hoping to see a drop in your ‘reassuringly expensive’ 0.45% platform fees, calm down, that hasn’t happened yet. But if you’re new to saving and investing and keen to build to make sure you can stand on your own two feet in the future, or want to put money aside for the little ones in your life, then it’s worth checking out these offers. It’s worth noting that Fidelity Personal Investing does not charge for its Junior ISA and Vanguard is also cost effective too.
interactive investor’s new Investor Essentials price plan puts them second cheapest on a £30,000 portfolio at £59.88p per year (behind Vanguard at £45). The rest of the field spreads from £60 per year up to almost £240 a year — almost four times as much, meaning that picking a platform carefully at every stage of your investment journey can save the smaller investor hundreds of pounds and the larger investor tens of thousands of pounds over time*.
Last but not least, it’s worth considering what matters to you in terms of service. Do you value lots of investment research, information and guidance? Do you want oven-ready portfolios (if you’re thinking of Boris stop!) or do you relish wading through lots of research and guidance to meet.
Remember, Compare the Platform has everything you need to find and the best platform for your investment needs.
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*Fees are different for Junior ISAs.
Photo by Towfiqu barbhuiya on Unsplash.com
