More and more investors are buying international stocks. Hargreaves Lansdown reported a 40 per cent increase in the number of people buying overseas shares in the first half of last year, compared with the previous year, and interactive investor said the number of international trades on its platform doubled in the same period.
For those investing in international securities, it might be worth considering cheaper options. This won’t be suitable for everyone – the established platforms have large customer service teams, and keeping your portfolio in one place can be less cumbersome for portfolio management and tax returns.
One investor wrote to me recently saying he has an individual savings account (Isa) with interactive investor in which he has 13 stocks listed on the New York Stock Exchange, one in Brussels, one in Frankfurt and 12 in London. Over the past year he said he’s paid approaching £5,000 in foreign exchange fees on just 43 transactions.
Interactive investor has some of the highest foreign exchange fees of any platform, starting at 1.5 per cent and scaling down for any transaction above £25,000. The foreign exchange fee for Hargreaves and AJ Bell start at 1 per cent.
If your portfolio is not in an Isa, interactive investor has the advantage of letting you hold foreign currencies in your account, which means you can buy and sell foreign securities without paying a foreign exchange charge on every trade. Hargreaves and AJ Bell don’t have this option.
However, because Isa rules don’t let you hold foreign currencies in your account, if you hold foreign securities within an Isa on interactive investor you will be charged a foreign exchange fee every time you trade. iDealing lets you sell and buy US stocks in dollars within your Isa without paying a foreign exchange charge, if done within the same business day. iDealing’s standard foreign exchange charge is 1 per cent above the interbank rate.
Other platforms offer cheaper options. IG, for example, has a foreign exchange charge of 0.5 per cent. If you invest more than twice in a month, the dealing fee on US stocks is removed the following month. It also lets you invest in a number of shares while the market is closed.
Freetrade, which now boasts more than half a million users, has a foreign exchange charge of 0.45 per cent and no dealing fee on top of that. It lets you invest within an Isa, and it is in the process of launching a Sipp. International stocks are currently limited to the US, however.
Trading 212, which also offers an Isa, has been free but it is introducing a foreign exchange fee of 0.15 per cent, among the lowest in the industry. Its website says it has added 1m customers in the past 12 months.
Dutch broker Degiro has a foreign exchange charge of just 0.1 per cent, lets you hold multiple currencies and has access to 25 different exchanges. Australian app Stake, which launched in UK last year, lets you buy US-listed exchange traded funds (ETFs) if you qualify as a sophisticated investor.
As we’ve written about, there are additional risks with many of these new-breed brokers, so I would suggest using them with caution. But they are offering much cheaper access to international markets.