Investors could save hundreds of thousands of pounds by switching to a cheaper Isa provider.
Expense management is as important as investment performance to ensure your savings grow. Someone who saves £1,600 a month in their Isa (bringing them closer to the annual allowance of £20,000) will have £2.4m after 40 years, assuming an annual return of 4%. But the Isa shop fee will drastically reduce this amount.
A 1pc annual fee would reduce the pot to £1.8m, while even a 0.5pc charge would reduce the investment portfolio to £2.1m, according to Telegraph Money analysis . This represents a difference of £322,500 in fees over 40 years.
The good news is that competition between brokers is fierce, which means savers can easily find the right deal for them.
However, choosing the right provider isn’t always easy – and getting the best deal depends on how much money you have, the type of investments you want to buy and how often you intend to change them. It is also important to remember that the Isa fee is in addition to the fees charged by the companies that manage the funds you choose.
At Hargreaves Lansdown, Britain’s most popular broker, an investor with £250,000 invested in funds alone would pay £1,125 a year for their Isa, according to data from The Lang Cat, an advisory firm. But someone with the same amount invested in investment trusts, stocks or exchange-traded funds would only pay £45. This is because the company charges 0.45% of a person’s savings as an annual charge, but caps this amount for listed investments at £45 a year. However, there is no ceiling for fund investors.
Matching your investment style with the right broker is essential to ensure that your savings are not wasted on fees unnecessarily. If the fund-laden Isa switched to Interactive Investor, the UK’s second-largest broker, the fee would drop dramatically to £120 a year. However, on Hargreaves, the investor can enter and exit funds as much as they want, whereas with Interactive, they would be limited to one free transaction per month. Anything more would incur an additional charge of £7.99 per transaction.