Best ISA account provider

You have some money aside, plan to make some more in the next years and want to invest them. So you are looking for the most efficient way to do it.
You decided to open an ISA account, read about all its pros and cons, looked how to open up an account, and got bombarded by Google ads of banks and trading platforms with promising titles. Maybe you already have a broker with which you invest, but it does not offer you the option to open an ISA account with them.
Now you need to understand where it would be best for you to open your account, what charges are involved, and which of these matches your needs, but all the information you find are a bit outdated or they completely ignore some cheap interesting providers, such as Freetrade and Trading 212.

Photo by Damir Spanic on Unsplash

There are many companies out there offering you to open an ISA account with them, but it is a rather difficult choice to make when so many variables are involved. The Government keeps a comprehensive list of all the authorised ISA managers in the UK, where I hoped to find the brokers that I like the most to be able to invest inside my ISA with them. You can find the list here.

But as you’ll probably soon realise, there are many many companies offering you this service, making it very difficult to make the best pick. That’s the reason why I decided to write this article, after spending 70+ hours comparing and evaluating the best ISA provider, I want to share what I learned and understood.

There are many different types of ISAs. Here, for clarity, we are going to focus only on Stocks & Shares ISA, expecting that you already made the choice of investing your money hoping to make the most of the years ahead of you.

Stocks & Shares ISA (SS ISA) follow similar rules than all the other ISAs. You can contribute each year putting £20,000 into your account, which are going to be shielded by (most) taxes.
You can take out any amount of those whenever you want, and your interests there can grow indefinitely, staying protected from the erosion of taxes.
You can have your money managed by a fund (Managed SS ISA) or you can decide to manage and invest them by yourself (Self-Selected SS ISA).

I am a devoted believer of my own abilities and I am very much looking forward to applying the knowledge I gained from The Intelligent Investor (amazing book on value investing, I highly suggest it; also… Warren Buffet highly suggests it) so here we are going to dive into the best funds for Self-Selected Stocks & Shares ISA.

Best Self-Selected Stocks & Shares ISA providers

Woo, that was quite of a long title to type. That is because there are many types of ISAs and many types of SS ISA funds. But if you are here it probably means you have already decided that you want to pick your own Stocks and ETFs, and want to waste as little money as possible doing so by paying unnecessary transactions costs and subscription fees. [Let me be clear here: EVERYWHERE you go, you will still be paying some sort of price to invest your money, that’s why your broker is there and why they are paying so much money to put their ads first under the google searches].

So let us jump directly to my preferred selection:

These are my best 3 picks, respective winners of three different categories:

  • Commission-free trading platforms;
  • Flat-fee platforms;
  • Percentual-fee platforms.

I am 24, plan to invest at least £20k per annum for at least the coming 25 years, looking to have 75/80% of my portfolio in Common Stocks and ETFs, and 20/25% into Bonds. I will probably hold my stocks for an average of 5 years, planning to make around 2/3 trades (BUY) per months and very few SELL.

If you ever wondered why there are so many trading platforms here’s the reason: clearly, most of the readers will have different necessities and investing strategies. This means that different platforms will be better for different investors. [For completeness, some platforms are just terrible and should not appeal to any investor, but they exist for the lazy investors that will put their money in a fund with no effort for a decent search].

Picking the best ISA provider is a crucial choice if you are serious about your investments. It is the broker you will likely use for many years to come and the fees in which you’ll incur will be eating off your earnings.

The message is, there is no one-size-fits-all choice, but there are some best choices — in my opinion — that you can take depending on your investment approach.

Broker suggestion chart: X-axis is the expected money to be invested, Y-axis is the expected frequency of the transactions.

This chart might guide you on the choice of the best for you based on the amount of money you’re expecting to put into your ISA and the number of transactions that you will be doing.
On the X-axis, the transition from one broker to the other would be suggested if you expect to contribute with more than £5k a year into your ISA.
The Y-axis represents the frequency of your trades, or better, the average amount of time you want to hold on stocks for. If you expect to hold your stocks for less than a year, you are probably better looking for the stock on the bottom of the graph.
The third axis. It might be very important for you to have a wide range of products and offerings. Interactive Investor has a great variety of them, and Vanguard has a pretty good choice too, but keep in mind that Freetrade has a limited selection of stocks and indices you can invest in.

If you are going to be contributing >£5k a year into your ISA for at least the next 5 years, and want to keep stocks for a relatively short amount of time, your best option might be Interactive Investor.

Interactive Investor has a fixed flat fee plan and a fixed cost for any of your trades. The standard plan is £9.99 a month, which builds up to roughly £120 per annum. Each trade is £7.99 for all UK and US trades, but every month you get free credit of £7.99 to be used against any trade.

First thing you might be wondering is: why the hell would be better to pay £8 per transaction if I am making a lot of transactions rather than getting them for free with Freetrade? The simple answer is: Freetrade is not entirely free, and it’s “free” service comes at a price. I have been using Freetrade from the very beginning they got into the brokerage market, and they have a typical major drawback: you pay a fairly high spread on every transaction, meaning that you basically pay a percentage fee for every transaction. This turns out to be actually worse than paying multiple flat fees if you are dealing with a high amount of money and buying and selling relatively frequently.

If you are planning to invest a high amount of money and like to have transparent fees, this might be the best option for you. The percentual cost of your ISA account will be relatively low and you will have clear low fees for each transaction. The allowance you get each month gives you the freedom to buy and sell stocks quite freely, and for a high amount of money, quite cheaply.

Not for you if you:

  • are going to make a very elevated number of trades each month. But probably this is not why you’re getting an ISA…
  • are hoping to have a clear deep analysis of the market on your platform. Interactive Investor has some good educational material but misses the former.
  • are opening an account “just to try” for a while before getting seriously into investing. The £120 fee will keep eating into your fund even if you put just a little bit of money in it to try it at first. Freetrade is completely free to open an account with and to trade and would be a better option to start with.

Other similar options: IG , AJ Bell, Hargreaves Lansdown. Compared to these other platforms I prefer ii because of its cheaper prices and its user-friendly platform.

If you expect to be charging up your ISA every year with over £5k and are planning to hold on your stocks for over a year on average, Freetrade might be the best choice for you.

Freetrade does not charge you a penny for any trades and has a £3 flat monthly fee that adds up to £36 a year. No charge to open an account, and no charge for withdrawal or inactivity.

Many define Freetrade as the European Robinhood — which, by the way, was supposed to be released in Europe in early 2020…

…but as many other people also question the efficiency of Freetrade to execute orders for you. Even if Freetrade declares they do not make any profit on the spread you pay, in my direct experience I have been paying quite high spreads. For some fairly volatile stocks, it has happened that I have bought at 5% above mid-price and sold at 6% cheaper. This can obviously be disastrous for your profits, and completely tear down your expected earnings. However, if you stay away from very volatile stocks, and on average avoid selling your stocks before a year from when you got them, you should be ok. From my experience, common ETFs have spread of less than 0.5%, which makes trading on Freetrade very competitive.

As a rule of thumb, if you are going to be holding your stocks for at least a year, then Freetrade will result more advantageous than Interactive Investor.
Also, consider a 0.45% spot rate when buying stocks in different currencies.

Not for you if you:

  • want to trade from your laptop. They only have a mobile app for now.
  • are looking for a wide offer of products. They do not have a very wide range of stocks and indices, and they do not offer you the change to trade options.
  • need educational material.
  • want comprehensive graphs. Freetrade has a neat and clean style, presenting minimal information to the user.

Other similar options: Trading 212. This other alternative, Trading 212, is slightly less intuitive and I prefer the Freetrade app. However, Trading 212 offers cheaper FX rates, so if you are planning to trade in the US market, go for Trading 212.

In case you know you will contribute less than £5k per year into your ISA and are going to just make few trades per year, then Vanguard is a good option for you.

Vanguard has a 0.15% account fee, capped at £375, which allows you to pay less than Freetrade as long as you have less than £24,000 in your account. Trades cost are 0.20% on average.

This percentage model means that it will be convenient for lower amounts of money, but will scale up quickly as you deposit more.

Quick disclaimer: I have never had an account with Vanguard and I quickly found out it did not match the criteria of my research (flat fees are a must for me), so I am not able to give you more insights into it.

Not for you if you:

  • are looking for a wide offering of products. Vanguard has many funds itself and is cheap to invest in them for amounts lower than £80k, but has got a smaller offer of stocks and other products.
  • are looking for an advanced environment to trade. Vanguard offers simple and clear analytics, that might be a pro or a con for you.

Other similar options: Fidelity, Nutmeg. I prefer Vanguard for the lower fund management cost.

**Update**: After a trial period, I decided to move my funds to Trading 212, which is now my go-to broker. Main reason for this is not the £36 annum rate nor the broader choice of stocks, rather the zero FX fee, which turns out to make a huge difference if you are interested in investing into American or European stocks. There are other useful features such as being able to set orders to execute automatically by setting some parameters (so-called stop loss or buy limit), which I like. On the other hand, I do not like the graphs and that I cannot see how my portfolio is doing on a timeline, but only its current value. I cannot give my opinion on the mobile app, as I have never downloaded it and I only invest through their website, to help myself stay away from the instinct of checking too often my portfolio.
If you are interested mainly in UK stocks, I would probably still suggest Freetrade.

Clearly, for my investment needs, Freetrade or Trading 212 are better options. I personally picked Freetrade.
I do not mind the minimal interface, I do my research elsewhere and access my portfolio only to go straight to buy what I want, so I do not really conduct any research on the platform where I invest (also because I could not!).
I personally like that it is a mobile-only platform. I downloaded it on my old phone and turn it on only when I want to make a particular trade. This prevents me from accessing the platform constantly to check how my portfolio is doing.
I trade mostly primary companies, meaning that volatility and spread do not affect much the cost of my trades. Moreover, I am not interested in having the chance to trade all the public companies on the world, I wouldn’t anyway.
I am not interested even in having an overcomplicated platform, I know what I am looking for an I just need a place where I can buy it.

And you? On what platform are going to start building your portfolio?

I hope this article helped you pick the platform right for you, as I spend SO much time trying to get my head around the huge number of options. I am sure there are other valid ones, make sure you “enjoy” some more research before hitting that “Open my account button”.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store
Federico Sanna

Autonomous Driving Systems Engineer at Arrival— Imperial College Bioengineering Graduate — 12challenges patient zero