Any advice on regular online investment fees?
12 April 2021
Question by Khuna
Hello, My question is around the cost of regular online payments into funds held in a S&S ISA and to what extent they matter (or not?) in the long run. I'm 37 and recently opened my first-ever S&S ISA (yay!) with AJ Bell. They charge £1.50 for regular investments online. I understand that this charge is per month and per fund, which would quickly add up if I were to invest regularly into 3-5 funds every month. If I'm correct here, I would be charged £18 per year per fund just to make monthly contributions, on top of platform fees and fund fees.
Although it's a flat fee, it does add up over several years of investing. I know that other platforms do not charge for regular payments into funds specifically and I wonder whether I should use one of those providers instead from a cost standpoint. My instinct is that being charged for making regular payments into a small basket of funds over the long term should be avoided if possible.
Would that make sense or am I missing something - or perhaps overthinking about the cost of making monthly payments? I'm discounting Vanguard because I want to have access to a wide variety of funds. For context, I'm planning to max my ISA allowance by investing ~£1,660 per month across a selection of 3-5 funds max (with a 65-35 split between equities and bonds overall). I'm already maxing out my pension contributions elsewhere and have a cushy emergency pot, so really trying to make money that would otherwise languish in a savings account work harder for me over a long-term period. This is money that I won't need in the next 10 years at least.
Thank you for taking the time to read my question and sorry for the long message!
Answered by Rich Ellis
First of all, congratulations on starting to invest regularly. Many leave this too late or try to time the market which is pretty difficult bordering on impossible. In terms of the charges, they vary from provider to provider so whilst some charge lower dealing fees their custody charges may be higher so it is important to review the total cost of holding and trading investments within your account. Your instinct here seems both logical and rational in that minimising fees can be a good way to keep more of your investment portfolio. It may be worth considering the following:
Do you feel that having access to a wide variety of funds is more important to you than minimising the charges you pay?
How are you selecting the funds you hold?
Is this strategy delivering better returns for you than holding a single low-cost fund?
Whilst it is not purely about low charges, the compounding effect of paying lower charges over, for example, a ten year period are not insignificant. That said, I do not believe an £18 charge each year is likely to impact your savings to much extent based on your intended level of savings. As you intend to max out your ISAs each year the £18 charge represents just 0.09% of your annual invested capital each year. The impact to your savings would be far greater if you were investing less each year. I hope this helps! Best of luck!
Director and Co-founder
I am Director and Co-founder at Ellis Davies Financial Planning Ltd, an independent financial planning business we set up in 2017 after working 20 years in Financial Services. We currently advise approx. 100 client families predominantly in Bristol and the South West.