Investors could be hundreds of thousands of pounds better off by switching to a cheaper Isa provider.
Managing fees is as important as investment returns to ensure your savings grow. Someone who saves £1,600 a month into their Isa (taking them close to the £20,000 annual allowance) will have £2.4m after 40 years, assuming a 4pc annual return. But the Isa shop’s charges will drastically reduce this amount.
A 1pc annual fee would reduce the pot to £1.8m, while even a 0.5pc charge would cut the investment portfolio to £2.1m, Telegraph Money analysis, has found. This is a difference of £322,500 in fees over the course of 40 years.
The good news is that competition among brokers is rife, meaning savers can easily find the right deal for them.
Picking the right provider is not always straightforward, however – and getting the best deal depends on how much money you have, what kind of investments you want to buy and how often you intend to change them. It’s also important to remember that Isa charges are taken on top of the fees charged by the companies that manage any funds you choose.
At Hargreaves Lansdown, Britain’s most popular broker, an investor with £250,000 invested solely in funds would pay £1,125 a year for their Isa, data from The Lang Cat, a consultancy, has shown. But someone with the same amount invested in investment trusts, shares or exchange-traded funds would pay only £45. This is because the company charges 0.45pc of someone’s savings as an annual charge, but caps this amount for listed investments at £45 per year. There is no cap for fund investors, however.
Matching your investing style with the right broker is vital to ensuring your savings are not needlessly wasted on fees. If the Isa packed with funds moved to Interactive Investor, Britain’s second-largest broker, the charge would fall dramatically to £120 a year. However, on Hargreaves the investor can move in and out of funds as much as they like, whereas with Interactive they would be limited to one free trade per month. Anything more would attract an additional fee of £7.99 per trade.
