A plethora of online trading accounts is available to UK traders or investors, but obviously various fees and charges accompany these accounts. In this article we aim to give an overview of these costs.
Hardly any UK online trading account brokers charge a fee to set up an account, but some do have minimum account deposit levels. Furthermore, fixed monthly fees may apply and could come into effect when the account is opened (see below for more details).
Account or management charges are generally levied only on the holdings of Funds (Unit Trusts and Open-Ended Investment Companies (OEICs)). These are usually percentage fees of the total amount held in the instruments, generally with a sliding scale of lower charges as the size of funds held increases. Furthermore, most online providers have a maximum cap on fees charged. Some brokers do offer fixed fees, charged either monthly, quarterly, semi-annually or annually.
Example AJ Bell:
- Shares (including investment trusts, ETFs, gilts and bonds) – 0.25% (maximum £7.50 per quarter)
- Funds (including unit trusts, OEICs and structured products)
- £0-250,000 – 0.25%
- £250,000-£1m – 0.10%
- £1m-£2m – 0.05%
- Over £2m – 0.0%
Example Charles Stanley Direct:
- Funds (OEICs and Unit Trusts) – 0.25% (charged pro-rata monthly in arrears)
- Loyalty Programme if you hold combined assets of over £250,000
- Stocks & Shares (including Investment Trusts, Exchange Traded Products, Gilts and Bonds) – 0.25% (minimum of £24, maximum of £240 per annum)
- Loyalty Programme if you are a frequent trader
Online trading/dealing charges
Online trading charges are usually per trade, regardless of the size of the transaction. However, there are different charging structures across the various brokers. Two common types of charge structures are: a sliding scale of cheaper charges, depending on the number of trades placed (usually within a calendar month), and a fixed-rate structure, whereby a set fee is charged monthly/annually and covers all trading activity. When choosing a broker, traders/investors should consider the different types of price structure in relation to their intended trading frequency.
Example Alliance Trust Savings:
- £10.00/month, covering four online trades/year.
- £9.99/trade above the four allowed per year.
Example Barclays Stockbrokers (Deals per calendar month):
- 1-9: £11.95
- 10-19: £8.95
- Over 20: £5.95
Example Charles Stanley Direct:
- £11.50/ trade
Telephone/postal trading/dealing charges
If trades are not placed directly via the online trading portal, many online brokers charge a higher fee for trading either via telephone with a customer service representative or via the post. Trading charges are often scaled higher with larger purchases of shares or funds.
- Alliance Trust Savings: £50/trade
- A J Bell: £29.95/trade
Overseas shares trading/dealing charges
Many brokers offer account holders the opportunity to trade non-UK shares, without having to open a separate foreign currency trading account. This usually means deals are struck in the overseas currency, and then converted back into pounds at exchange rates offered by the broker (see Foreign Exchange (FX) charges/rates below). This fee would usually be on top of the standard dealing charge.
There may also be charges by overseas governments for trading their stocks.
Foreign Exchange (FX) charges/rates
If trading in overseas shares, most online accounts will incur a charge for transferring funds into the other currency and back again. These foreign exchange fees are usually charged at a percentage margin rate of the interbank exchange rate at the time the trade is executed.
- TD Direct Investing: The foreign exchange rate for all currency conversion is based on the bid/offer exchange rate to which a spread up to +/- 1.50% is applied at the time of execution
- Charles Stanley Direct: All trades placed online which are denominated in a foreign currency are subject to foreign exchange rates. This will normally be the previous day’s closing spot rate, less 1% (but the right is reserved to amend it intra-day).
Government taxes and levies
Stamp Duty or Stamp Duty Reserve Tax (SDRT) is payable on UK equity purchases at the following rates; 0.5% of deal value (on securities settled through CREST); for non-CREST settlements, stamp duty is charged only on purchases over £1,000 in value.
There may also be levies charged by overseas governments for trading overseas stocks.
Example Barclays Stockbrokers: Stamp duty or stamp duty reserve tax (SDRT) on all UK share purchases is payable at the prevailing rate at the time of dealing.
The current rates are:
- 0.5% SDRT on all UK share purchases settled through CREST, rounded up to the nearest 1p.
- 0.5% stamp duty on all UK share purchases not settled through CREST, rounded up to the nearest £5.
- Stamp duty on Irish-registered stock is currently charged at 1%.
- The Panel of Takeovers and Mergers currently levies £1 on all UK share transactions of £10,000 and over.
Some providers charge a fixed inactivity fee if the account is not used within a stipulated number of months.
- IG: Inactivity fee – £12 per month, charged if there is no activity across any IG account for 24 consecutive months (dividend payments count as activity).
Most brokers do not charge for simply withdrawing cash, but do check.
- Halifax Share Dealing: Cash withdrawal by cheque – £12.50
- Hargreaves Lansdown: Transfer out (as cash) – £25.00
Cash transfer out to a different provider
Unlike cash withdrawals, many online trading accounts do charge for a transfer to a third-party trading account. This is usually a fixed amount or a percentage fee.
- Alliance Trust Savings: Any transfer out to another provider – £60 plus VAT
Stock/share transfer out to a different provider
Furthermore, stock or share transfers to another online account provider often incur a fixed or percentage fee.
- Hargreaves Lansdown: Transfer out (as stock) – £25.00 per holding
Cash transfer in from a different provider
Transfers in from a third-party provider are rarely charged for.
Stock/share/fund transfer in from a different provider
Share/stock or fund transfers in from another online broker rarely incur a fee.
Automated sales to cover charges
If there are not enough funds held in cash in an account, it may be necessary to either liquidate units in the funds or sell shares to meet payment of fees. Some online brokers will add an extra charge for these transactions.
- Hargreaves Lansdown: £1.50 per stock per month
Paper valuations/ statement
A fixed fee is sometimes charged for the dispatch of paper statements or valuations.
- Alliance Trust Savings: Paper document charge (half-yearly statement and valuation, contract notes, tax certificates for Investment Dealing Accounts, statutory money purchase illustrations for SIPP accounts) - £25.00 plus VAT
- Halifax Share Dealing: Ad hoc statement or valuation (on request) - £12.50
Account closure fee
Often a fixed administration fee is charged when an account is closed.
- Hargreaves Lansdown: Account closure fee – £25.00 + VAT
ISA (Individual Savings Account) charges
The aforementioned account charges will usually apply for trading accounts held in the form of an ISA. However, some online brokers may charge additional fees for transferring ISAs to another broker.
SIPP (Self-Invested Personal Pension) charges
Again, the above-mentioned charges will also apply to a trading account held in the form of a SIPP. Again, though, further charges may apply as below:
- Provision/set up of flexible income drawdown
- Providing a combined payment of tax-free cash and income
- Capped income drawdown
- Additional amount allocated to capped drawdown/review of income levels
- Withdrawal of all SIPP funds through flexible income drawdown
- Annuity purchase
- Pension splitting on divorce
- Death benefits payment
- IG: £195 annual administration fee (payable to James Hay)
- TD Direct Investing: Annuity purchase £75 + VAT
Fund manager charges
Together with the online broker’s fees, charges are also levied for holding funds with a fund manager. The fund manager's fee is levied annually, and is typically stated as a percent of the investment value. In most cases, the ongoing charge is calculated and deducted daily from the fund. Usually, therefore, it is not necessary to pay the fund management fees separately.
Ongoing Charges Figure (OCF)/ Total Expense ratio (TER)
The OCF or TER is the ongoing costs associated with the fund. It includes the fund manager's annual charge and other expenses such as depositary, registrar, accountancy, auditor and legal fees, but not the fund's transaction costs, e.g. dealing commissions.
Some brokers may be able to offer funds by certain fund managers at a lower fund management fee than their competitors.
Furthermore, some funds will have a buy/sell spread and may charge a dilution fee. Investors should consult the factsheet that is usually available for any given fund or fund manager.
Finally, the fund manager may also charge a performance fee.
Examples of OCF/TER for different funds offered by Hargreaves Lansdown:
- HL Multi-Manager Special Situations Trust – 1.52%
- Stewart Investors Asia Pacific Leaders (Class B) – 0.86%
- CF Woodford Equity Income – 0.60%