One of only a few variables you can control when making your spare cash work harder is fees. Unfortunately fees come in all shapes and sizes when looking at brokerages and funds. So I’m going to keep it simple and go over brokerage fees in this post.
Rule One: Keep fees to a minimum
Rule Two: Don’t forget rule one.
Brokerages are split into 2 camps when it comes to charging fees. Some charge a flat fee per quarter or year and some charge you a percentage of your portfolio value.
As for which broker you should use, generally, if you do not see your investment stash being worth more than £40,000 in the next 4/5 years then go with a percentage fee broker. If you see your investment portfolio value rapidly increasing it may be worth going with a flat fee broker straight away.
Platform Fee Example
We’ll use a portfolio value of £10,000 for the following examples. The examples will include the cost of 12 fund purchases over 1 year.
Hargreaves Lansdown (Percentage)
Here’s what Hargreaves Lansdown are currently offering when it when comes to their Stocks & Shares ISA charges: HL Fees
Calculate annual fee: £10,000 x 0.0045 = £45
Total Annual Cost: £45
There are no dealing fees when dealing funds on HL so a monthly fee is all you will be paying. Just divide that annual amount by 12 for the monthly cost.
Lloyds Bank Share Dealing (Flat Fee)
Here’s what Lloyd’s are offering on their Stocks & Shares ISA: Lloyds Bank
Annual fee: £40
Fund dealing charge: £1.50
Annual dealing fee: £1.50 x 12 = £18
Total Annual Cost: £58
As you can see, the percentage broker is the cheapest when the portfolio is worth £10,000. However, if you do the same calculations with a portfolio worth £40,000, the flat fee broker is the cheapest option.
Here’s a very simple breakdown of the fees that you should be mindful of when choosing a broker:
- Brokerage platform fee (is it a percentage or flat fee)
- Dealing fees (some platforms don’t charge for dealing funds but do individual stocks)
- Exit fees
As always Monevator has done an exceedingly good job of taking the hard work out of choosing a broker: Monevator Compare Broker Table