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Cheapest stocks and shares ISA hack

Our cheapest broker comparison table [1] shows how to cut your platform and trading fees to the bone. But there’s an investment ISA cost hack that even we were too afraid to talk about until now – lest the military-broker complex take us out with a drone strike on Monevator HQ.

Well, no more! It’s time to speak truth to power and to watch how long it takes power to nuke us from orbit.

I’m going to call this ISA cost-optimisation the Alex Manoeuvre in honour of the latest Monevator reader who prompted me to spread the word.

Here’s how the hack works.

Instead of holding your stocks and shares ISA [2] with either a percentage-fee platform or a flat-fee platform, you transfer it between the two to get a best-of-both world’s price.

You can cut your stocks and shares ISA costs by over 55% using this method.

The principle is:

Percentage-fee platforms offer the best deals 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 platforms offer the best deals 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 [5].

Cheapest stocks and shares ISA hack in action

Vanguard Investor [6] 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 [7]

Were you to drip-feed [8] your ISA allowance in evenly 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 iWeb [9] for permanent storage.

iWeb charges a one-off account opening fee of £25. You won’t pay it on future transfers though, so we’ll ignore it as the price of a night out that we can’t have anyway.

After that iWeb charge zero for platform fees and £5 per trade.

We’re not trading so we plan on paying pretty much zero pounds to iWeb.

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

Now that is cheap.

Cheapest stocks and shares ISA comparisons

Freetrade [10] costs £36 and you’d have to stick to ETFs only.

You’d expect to pay at least £36.50 at Halifax Share Dealing [11]. More if you bought multiple funds per month.

Lloyds Share Dealing [12] costs at least £58. EQI [13] more like £70.

Critically, Vanguard doesn’t charge an exit fee for the transfer and iWeb doesn’t charge an entry fee.

You need to transfer your investments in specie (so they’re not sold to cash) to avoid paying dealing fees to iWeb at the other end.

In Specie or re-registration transfers mean you don’t have to worry about being out of the market [14] either.

The compromise is that Vanguard restricts you to its own-range funds and ETFs. That’s okay because it runs excellent, cost-competitive index trackers [15].

You’d need to check that iWeb offers the same trackers. It does hold most Vanguard funds and ETFs, so that shouldn’t be a problem.

iWeb’s website is out of the Dark Ages but it’s part of Halifax Share Dealing and is generally fine to deal with.

I’ve ignored rebalancing costs once you’re parked up at iWeb. A small investor should be able to rebalance with new money [16].

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 [17].

Or you could invest everything in the Vanguard LifeStrategy fund. That takes care of rebalancing for you.

If you don’t want to be limited to Vanguard index trackers then you can perform the same manoeuvre with another percentage-fee platform, or stick with Freetrade [10].

No other combo is as cheap as the Vanguard/iWeb hack though. And the nearest rival platforms are all restricted to some degree.

Cheapest SIPP hack

The equivalent hack with SIPPs is Vanguard to Fidelity. The extra compromise here is that your Fidelity [18] holdings must be entirely in ETFs. This caps your platform fees at £45.

There are decent savings to be made if you buy three or more ETFs every month. Fewer than that and there’s probably better things to do with your time.

If you want to hold funds then the cheapest hack axis is Vanguard to Sharedeal Active [19] where you pay a £118.80 flat-rate SIPP fee.

Fidelity’s SIPP is exceptionally cheap though, if you stick to a couple of ETFs.

Cost shavings

If you truly want the cheapest stocks and shares ISA possible then you’ll need to factor in the cost of the cheapest trackers [20] available on any platform versus those available through Vanguard.

Paying slightly higher OCFs [21] 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!)

Never let it be said that we conceal the truth at Monevator-leaks. No finance industry black ops goons are going to scare us.

Right-o, must dash, there’s some masked men abseiling through the window.

Take it steady,

The Accumulator

  1. You pay zero for trading ETFs as long as you accept the fixed daily trading times. [ [24]]