How to increase your returns by cutting costs

Between annual charges, dealing fees and extras, investment charges can add up quickly and hinder your returns. But for those considering a change, there are some basics to consider first. A key point to remember when looking to save money on platform costs is that the cheapest platform for one person may not be the cheapest for another because this ultimately depends on what your portfolio is like.

It also depends on your habits and behaviour. For example, doing things the old fashioned way with paper and telephone tends to be more expensive than going online. And there are unexpected investment costs that can catch you out if you don’t carefully read the small print.

What is cheap for you?

If you're simply looking for the cheapest online platform, observing the basic features of your portfolio and investment style will go a long way towards helping you pick one. If you only invest in shares of UK listed companies, investment trusts and exchange traded funds (ETFs), you are spoilt for choice when it comes to fairly cheap platforms. This is because many of the large ones, including Hargreaves Lansdown (HL.), AJ Bell (AJB) and Fidelity, cap their percentage-based annual fees to a fairly low level for these securities – £45, £42 and £90, respectively – for their individual savings accounts (Isas). But if you favour open-ended funds, Interactive Investor’s flat annual fee is hard to beat.

Then there’s how frequently you trade. Trading single-company stocks, investment trusts and ETFs can be comparatively expensive on the main platforms if you do it often – fees range from up to £11.95 per trade with Hargreaves Lansdown to £3.99 with Interactive Investor. Frequent traders tend to be better off with a trading platform. Some such as Trading 212 offer fee-free trading, while others such as Interactive Brokers have low percentage-based fees. 

If it’s right for your strategy, it’s worth considering setting up a direct debit and using your platform’s regular investing feature. This often comes with reduced dealing charges, and Halifax Share Dealing, Hargreaves Lansdown and Interactive Investor offer free regular investing in both open-ended funds and listed securities such as shares. 

The type of accounts you need and how big your portfolio is also matter. Self-invested personal pensions (Sipps) tend to be more expensive than Isas and general investment accounts, so it is worth thinking about where you hold a Sipp carefully. If you are approaching retirement, check whether your Sipp provider charges for drawdown on top of its regular annual charge. For example, Barclays Smart Investor charges £100 for flexi-access drawdown, Barnett Waddingham charges £125 and Charles Stanley charges £60 a year.

Also consider fund costs. These are different to platform costs because they are already accounted for in your returns, meaning that you don’t see the money leaving your account. But whether you favour active or passive investing, choosing the cheapest fund among similar propositions has a decent chance of improving your returns. Our deep dive into the cheapest funds available to private investors ('Super cheap funs', IC, 16 June 2023) is a good place to start looking.

When you are choosing a platform or stockbroker, also check to see if it has exit fees. These are much rarer than they used to be but a few providers still charge them. For example, Redmayne Bentley charges £15 per line of stock to transfer out a Sipp or Isa, up to a maximum of £195 per account. And there’s an additional £60+ in VAT if you are transferring your Isa in full.

Charles Stanley, meanwhile, charges £10 per holding for UK, international or fund transfers out.

Old school is pricey 

If you take an 'old school' approach to investing, it could be expensive. Trading over the phone rather than online costs more – when it is available. For example, Hargreaves Lansdown has a 1 per cent charge for telephone trading, with a minimum fee of £20 and maximum fee of £50. Bestinvest charges £30 for each telephone transaction against an online dealing fee of £4.95 for UK-listed shares.

Picking a stockbroker, perhaps one that operates locally, over a mainstream online platform can offer a more tailored experience, but may not come cheap – even if you opt for the execution-only service without investment management or financial advice. Some stockbrokers charge percentage-based dealing fees that can be quite hefty, particularly if you trade considerable sums – in the region of 1.75 per cent in some cases. For example, this equates to a £87.50 fee for a £5,000 trade.

Investing with share certificates rather than using a standard nominee account on a platform can also be pricey. Shareview Dealing, a company that offers certificated dealing, charges 1.5 per cent on the first £50,000 traded, with a minimum fee of £45 if you do the trade online or £60 over the phone. Paper share certificates are due to be retired at some point in the next few years, so if you decide it’s time to bite the bullet and transfer the holdings to a nominee account, consider your options carefully. For example, both AJ Bell and Hargreaves Lansdown let you transfer your share certificates for free in a general investment account, but Charles Stanley charges £50 per holding. 

It can be helpful to have your statements and documents in print rather than online, but not all platforms send them to you for free. For example, Interactive Investor charges £3 plus VAT for every document you request.

Foreign shares

Trading and holding foreign shares can incur a range of extra costs, starting with a foreign exchange fee, which the vast majority of platforms and brokers charge. Interactive Investor’s is 1.5 per cent for transactions up to £25,000, which means £150 for a £10,000 transaction, for example. Hargreaves Lansdown’s is 1 per cent on the first £5,000 and decreases gradually after that, while AJ Bell and Fidelity charge 0.75 per cent or, above £10,000, less.

Using a fund or an investment trust is often the cheapest way to invest outside the UK. But some mainstream platforms are cutting their costs of investing in US shares. For example, Bestinvest offers free trading of US shares, and Interactive Investor charges £3.99 for both US and UK-listed share trades, and gives you one or two free trades a month with its Investor and Super Investor plans. Interactive Investor’s fee for other international shares is £9.99 per trade. But also consider foreign exchange fees – these remain costly on a lot of platforms, with the likes of Interactive Brokers one of few exceptions. 

Trading shares listed on non-US or European markets can be harder. AJ Bell, for example, only allows trading in Pacific markets – Australia, New Zealand, Hong Kong, Japan and Singapore – over the phone and for a minimum deal size of £10,000. And dealing in international shares via the phone costs £29.95 instead of the usual £9.95 online. AJ Bell's online trading fee, including for dealing in international shares, will be cut to £5 from 1 April 2024.