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The cheapest stocks and shares ISA on the market

What is the cheapest stocks and shares ISA available? The answer to that question is as simple as it gets. 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.

Zip. Nada.

Now that’s my kind of price range!

Read on for more about InvestEngine’s share ISA. 

Cheap stocks and shares ISA hack news! If you’re interested in our investment ISA hack then there’s good news: iWeb Share Dealing has a special offer on. It has waived its usual £100 account opening charge until 31 December 2023. So you can sign-up for free, and take advantage of its zero platform charge thereafter. More on this below.

Cheapest stocks and shares 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 its range of ETFs is more restricted than costlier platforms, 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 investment 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 paid managed offering. 

Cheapest stocks and shares ISA: alternative

The cheapest stocks and shares ISA runner-up is Trading 212. They also charge a big, fat zero for platform fees and trading commission. However, they levy a FX fee of 0.15% on transactions that involve foreign currency. (InvestEngine do not). 

This piece explains how you can avoid FX fees using ETFs. 

Some Trading 212 users also report paying higher bid-offer spreads on their trades than may be the case on other platforms. It’s very hard for us to know if they’re right, but no platform can afford to offer its services for free. They have to make money somehow. 

Cheap stocks and shares ISA hack 

What if InvestEngine’s prices creep up, or you don’t like its limited pool of ETFs, or want an alternative because you’re concerned about the FSCS investor compensation limit of £85,000?

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 you transfer it to the cheapest flat-fee broker.
You don’t buy and sell your investments at the flat-fee broker. You only trade (for zero commission) on 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 the cheapest is X-O.co.uk when iWeb doesn’t have a special offer on. 

X-O charges a quite reasonable £0 for platform fees.

Dealing commission is a much less competitive £5.95 a throw. But we’re not trading there so we plan to pay pretty much zero pounds to X-O.

Total cost of your stocks and shares ISA per year = £16. 

Not bad!

Just transfer your ISA from Vanguard when it’s full, or after you’ve paid in your last contribution during the current tax year. 

Open a fresh stocks and shares ISA with Vanguard on new tax year day (6 April) while your old one is lodged with X-O, gratis. 

Note that X-O doesn’t do funds. It does do ETFs though, so make sure your Vanguard portfolio only contains ETFs tradable at X-O before you transfer.

You don’t want to have to sell out of the market and then buy your portfolio again when it arrives at X-O. 

Cheapest stocks and shares ISA comparisons

What are the cheapest stocks and shares ISA alternatives to X-O?

Next comes iWeb Share Dealing. It normally charges a one-off £100 to open an account. But your ISA platform fees are zero after that.

iWeb also charges £5 per trade, so its a little cheaper than X-O if it wasn’t for the signing-on fee. 

So it makes sense to pounce on iWeb’s current special offer: open a stocks and shares ISA (or a standard dealing account) and it will forget all about charging £100, so long as you are onboard by 31 December 2023. 

There’s no apparent obligation to fund or trade in your new account. See the offer T&Cs. So even if you’ve opened a stocks and shares ISA elsewhere in the current tax year, you can still open an iWeb dealing account. 

Once you’ve got your foot in the door, you can put the cheap stocks and shares ISA hack into action without having to pay £100. 

Even if you’ve opened another type of ISA elsewhere this tax year (e.g. cash ISA or LISA), you can still activate a new stocks and shares ISA with iWeb. 

Arguably, you can do so even if you’ve maxed out your annual ISA allowance, as iWeb don’t require you to fund your stocks and shares ISA with them. 

But you can just as easily make this work with a dealing account. There’s no need to open a stocks and shares ISA if you don’t want to. (Remember, the hack entails transferring existing ISA holdings.)

If you miss the iWeb special offer then you could think about its account opening cost as £33.33 for three years and then nothing from year four on.  

Any other options?

You’d expect to pay £36 a year for your investment ISA at Halifax Share Dealing. 

Lloyds Share Dealing costs £40 for your ISA platform fee. 

Trades cost extra at these brokers – but you do your buying and selling at Vanguard.

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. 

Still, the bottom line is that InvestEngine is the cheapest stocks and shares ISA. The Vanguard-X-O or 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.

The other main compromise with X-O is its website is medieval (as is iWeb’s). Reviews on the likes of Trustpilot are distinctly average. 

X-O and iWeb are bare bones offerings so don’t rock up expecting five-star customer service. 

I’ve personally dealt with iWeb for many years and found it to be perfectly acceptable. Plenty of Monevator readers also get on fine with X-O. 

Note: accounts held with Halifax / Bank Of Scotland, Lloyds Bank, and iWeb count as one for the purposes of the FSCS investment protection scheme.

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. 

Wombat is slightly cheaper again (0.1%, plus £12 acount minimum) but its ETF list is extremely limited. 

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 £90 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 free of charge. Though X-O levies an exit fee should you decide to leave. (iWeb does not). 

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 all parked up at your cheap platform. 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 a Vanguard LifeStrategy fund if you’re not at X-O (which is ETF only). LifeStrategy is a multi-asset 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.  
So every tax year, you can open a new ISA at the percentage-fee broker, and ship last year’s ISA to the flat-free broker. 
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. 

Cost shavings

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,

The Accumulator

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.

The post The cheapest stocks and shares ISA on the market appeared first on Monevator.

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