What is the cheapest stocks and shares ISA available? Answering this question used to involve a switcheroo only slightly less cunning than the Princess Bride’s Battle Of Wits.
But no more! Now the answer is easy.
The cheapest stocks and shares ISA is the DIY option from InvestEngine.
Currently that’s the lowest cost stocks and shares ISA on the market because it costs nothing.
Now that’s my kind of price range!
Cheapest stocks and my share ISA: good to knows
InvestEngine’s ISA costs zero for annual fees, dealing charges, FX fees, entry/exit levies and most of the other multi-headed investment costs that snap at our wallets like a financially-incentivised Hydra. (It’s little known that the Ancient Greek polycephalic snake-beast was on a bonus scheme. Fifty drachma per hero slain.)
The only costs you will pay are the usual Total Expense Ratio / Ongoing Charge management fees that must be borne when investing in any fund, plus trading spreads. So far, so standard.
The platform’s downside is that you can only invest in a restricted range of ETFs and you can only trade at fixed times per day.
Frankly though, I think that’s a reasonable trade-off. Especially because you can easily create a good portfolio from the ETFs available.
Read our full InvestEngine review. We like it. Just make sure you choose the DIY ISA, not the managed one.
Our only concern is how long can the service remain free?
We’ve previously investigated how zero commission brokers make their money. In InvestEngine’s case, it’s mostly hoping you’ll opt for its managed offering.
Cheap stocks and shares ISA hack
But what if InvestEngine’s prices creep up – or you’d prefer to invest in a wider range of funds and ETFs?
In that event let’s recap our cheap stocks and shares ISA hack – it still delivers tax shelter satisfaction for an exceptionally low cost.
Here’s how the hack works:
You begin by drip-feeding into your stocks and shares ISA with the best-value percentage-fee broker on the market.
Once your ISA is full – and grows to a critical size – you transfer it to the cheapest flat-fee broker.
You don’t trade at the flat-fee broker. You only deal for zero commission with your percentage-fee platform.
In the new tax year, you open a fresh stocks and shares ISA with the percentage-fee broker.
Rinse and repeat.
You now enjoy a best-of-both worlds deal that takes advantage of the brokerage industry’s niche marketing strategies.
Percentage-fee platforms offer the best terms to small investors. They tend to rake it in once your account swells beyond £25,000 to £50,000. They’re relying on your inertia.
Flat-fee brokers offer good rates to large investors. They hope to make it up in trading fees. They’re relying on high rollers who treat their portfolios like a night at the casino.
You can arbitrage these cost models, provided you’re active in transferring your ISA and then near-comatose once you’ve parked it at your long-stay platform.
Cheap stocks and shares ISA hack in action
Vanguard Investor offers the cheapest percentage fee stocks and shares ISA.
It charges 0.15% on the value of your assets and zero for trading fees.1
Were you to drip-feed your ISA allowance in evenly (£1,666 every month), you’d pay approximately £16 in platform fees for the year.
Leave your assets with Vanguard forever though and it’d keep charging 0.15% until you hit its £375 cap – the point where your account has accumulated £250,000.
But you’re not going to hang around.
Instead, you transfer your ISA to the most convenient flat-fee platform for long-term stashing. There’s a few choices but our number one pick is iWeb.
It charges a stiff, one-off £100 to open an account.
Thankfully things improve from there. Once you’ve got past paying a ton just to say “Hi,” iWeb charges zero for platform fees and £5 per trade.
We’re not planning to trade at iWeb, so the annual cost is £33 per year if we amortise the account opening fee across three years. After that, we’re paying nothing to iWeb for ISA storage fees.
Of course, there’s no point moving your ISA until it’s costing you more at Vanguard than it does to shift it.
How to calculate when it’s time to transfer your ISA
Here’s the formula:
Total annual costs of flat-rate broker divided by percentage-fee broker’s annual rate = the breakeven point
Once your ISA’s value reaches the breakeven point then it’s time to transfer.
iWeb cost = £33 per year (amortised over three years)
Vanguard annual percentage fee = 0.15%
£33 / 0.0015 = £22,000
Move your ISA when its value hits £22,000. It costs you more than £33 per year at Vanguard beyond this point.
Don’t move your current tax year’s ISA before you reach your £20,000 annual allowance. Otherwise you’d have to continue filling it at iWeb for the remainder of the tax year. We definitely don’t want that when iWeb’s trading fees are £5 a shot. Vanguard’s zero commission is more our canny style.
But you can move previous tax year’s ISAs at any time. So ship them off to iWeb once they’ve achieved the £22,000 critical mass. Meanwhile, your current tax year’s ISA stays at Vanguard until it’s full.
How do you disentangle previous years’ ISAs from your current tax year’s ISA?
Your new broker’s stocks and shares ISA transfer form should give you an option to only transfer your subscriptions from previous tax years.
Tick this box and move your entire balance.
Do not tick the box to transfer subscriptions from the current tax year.
Cheap stocks and shares ISA cost using the hack
This trick takes a little while to pay off while you swallow that iWeb account opening fee, but then your stocks and shares ISA fees plummet:
Total cost of your stocks and shares ISAs per year = £49 for first three years
(Approx £33 per year at iWeb + £16 annually at Vanguard)
Annual total cost after the first three years = £16
(£0 per year at iWeb + approx £16 annually at Vanguard)
Not bad at all.
Cheapest stocks and shares ISA comparisons
You’d expect to pay at least £58 a year for your stocks and shares ISA at Lloyds Share Dealing. (£40 platform fee + £18 in regular investing fees to buy just one fund per month. Multiple funds cost more).
FreeTrade is £59.88 annually. You get as many zero commission trades as you like, but must make the magic happen with a limited palette of ETFs.
Halifax Share Dealing costs at least £60. (£36 platform fee + £24 in regular investing fees for just one fund per month. More for multiple funds).
Fidelity costs £63 per year for ETFs only. (£45 platform fee + £18 in regular investing fees to buy just one ETF per month. Multiple ETFs cost more).
Sitting on a £20,000 investment ISA at Vanguard costs you £30 a year alone. Plus another £16 on top as you build up your current tax year’s ISA.
The bottom line is that InvestEngine is the cheapest stocks and shares ISA by far. The Vanguard-iWeb combo places second in most scenarios if you make monthly trades.
The other downside with Vanguard is you’re restricted solely to its funds and ETFs. That’s okay though because it runs excellent, cost-competitive index trackers.
Granted, you can switch to a wider selection at iWeb but that would incur trading charges we haven’t allowed for above.
The other main compromise with iWeb is its website is medieval. But it’s part of Halifax Share Dealing and is generally fine to deal with.
Low cost stocks and shares ISA: alternatives to Vanguard
You could replace the Vanguard leg of the hack with Dodl. That’s AJ Bell’s spin-off app-only brand.
Like Vanguard, Dodl charges 0.15% per annum in platform fees and nowt for trading.
However, your fees would be higher because Dodl charges a £12 minimum fee no matter how empty your account is.
It also features a restricted fund and ETF range, though it’s not Vanguard only.
Close Brothers is your next stop among the percentage-fee brokers. It charges a 0.25% platform fee and zero commission for funds. ETF trades are £9 a pop, with no mercy for regular investors.
If you hate the idea of filling in transfer forms then you can make the entire hack work at a slightly higher cost at Fidelity:
Buy funds monthly for zero trading fees while racking up platform fees at 0.35% per annum.
Once you hit the breakeven point, sell your funds and buy as few ETFs as possible to reconstitute your portfolio at £10 a trade.
Fidelity caps ETF fees at £45 per year.
Using this scheme, there’s no need to worry about which year’s ISA you’re transferring. The entire dosey-doe happens within your Fidelity stocks and shares ISAs.
It works because Fidelity act as a percentage-fee/zero commission broker with funds, and a flat-fee broker with ETFs.
Check out our comparison of ETFs vs index funds.
Tidying up the loose ends
All the cheap stocks and shares ISA options laid out above handle ISA transfers gratis. Broker entry and exit fees are quietly going the way of the woolly mammoth but watch out because some market participants still charge them.
You need to transfer your investments in specie (so they’re not sold to cash) to avoid paying dealing fees to your flat fee broker at the other end.
In Specie or re-registration transfers mean you don’t have to worry about being out of the market either.
Check your new broker offers the same funds and ETFs as your old one.
Invest in accumulation funds and ETFs from the beginning. This will save you paying to reinvest dividends at the flat-rate broker.
I’ve ignored rebalancing costs once you’re parked up at iWeb. A small investor should be able to rebalance with new money. Anyone with an embarrassment of riches can set their rebalancing alarm to once every two or three years. That gives you just as good a chance of being up on the deal as any other rebalancing method.
Or you could invest everything in the Vanguard LifeStrategy fund. That takes care of rebalancing for you.
Either way, rest assured this manoeuvre does not contravene the stocks and shares ISA rules:
You can have as many stocks and shares ISAs as you like, so long as you don’t put new money into more than one per tax year.
Transferring old ISA money or assets does not use up your ISA allowance for the current tax year or break the one-type-of-ISA-a-tax-year rule.
You can transfer any amount of your previous years’ ISA’s value. You can transfer the whole lot into one ISA, or transfer a portion of it into several ISAs, or any other combo you desire.
For more on stocks and shares ISA transfers.
To calculate your cheapest platform option.
Our broker comparison table tracks the UK’s best platforms.
If you truly want the cheapest stocks and shares ISA possible then you’ll need to factor in the cost of the low-cost index funds and ETFs available on any platform versus those available through Vanguard.
Paying slightly higher OCFs than necessary could overwhelm your platform fee / dealing fee savings. Be especially vigilant if you have a very large portfolio.
None of this takes into account the value of your time spent filling in forms. Although when you’re getting this anal then maybe that’s a net positive. (A person’s gotta have a hobby!)
Take it steady,
Note: Links to platforms may be affiliate ones, where we may get a paid a small fee if you sign-up. This doesn’t alter the price you pay.
You pay zero for trading ETFs as long as you accept the fixed daily trading times.
Put on your scrubs as we surgically remove another cost with the cold-precision of a high-functioning sociopath.
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