What's the cheapest way to buy funds?

Following the introduction of rules banning commission, we round-up the charges from the market's leading players and help you work out which one will offer you best value for money.

Unlike savings accounts, you have to pay to invest in funds. However, if you know where to look, it is possible to cut the cost of investing and keep more of your returns.

Ironically, buying direct from investment managers is the most expensive route - with most of them levying an initial fee of 5%. However, investment platforms – also known as fund supermarkets - which allow you to buy funds from across the investment universe will waive this fee.

Cheap and convenient

As well as being cheaper, these platforms are also more convenient because they allow you to hold all of your investments in one place, making your portfolio easier to manage and review. And, if you're not sure where or what you want to invest in, they include lots of tools to help you research and choose the most appropriate funds. Some even provide model portfolios for investors that do not want to make the decision themselves. Investments can be held within an Isa if you are looking to save on tax or a Sipps (self-invested personal pension) if they are pension savings.

While these services do allow you to cut the cost of investing they are not free. Until recently, many had no upfront charges, making them appear free, but the platforms had been earning a trail commission on the back of all the funds they had sold – money that was being paid by investors as part of their fund's annual management charge or AMC.

The regulator did not like this approach and through what is known as the Retail Distribution Review, banned the payment of commission. As a result all platforms have until April 2014 to introduce a new up-front charging system, which, the Financial Conduct Authority hopes, will make it easier for investors to compare costs.

At the moment the market is split between platforms that charge a fixed fee and those that charge a percentage of your holdings. Many are moving towards the sale of so-called 'clean' shares for funds where there is a lower AMC that doesn't include any commission payments, but where retail or 'dirty' shares are sold, the commission element of the AMC will have to be rebated back to the investor.

What's the best platform for you?

Just which platform works best for you will ultimately depend on how much money you have, how often you trade and what investments you hold. Confusingly some platforms are negotiating lower AMCs for some funds – while this is great for investors, it does make it harder to compare costs.

So to help you see through the 'mud' we outline the charges for the UK's biggest and most popular platforms. Shoot straight to the bottom to see our colour-coded tables which show you which are the cheapest for Isa investors with accounts worth £10,000, £20,000, £50,000 and £100,000.

For smaller fund investors, analysis from The Lang Cat shows that those platforms charging the lowest percentage-based fees work out the cheapest – both Cavendish and Charles Stanley charge just 0.25%, undercutting the three biggest players: Fidelity, Hargreaves Lansdown and Barclays Stockbrokers. This means a £10,000 investor pays just £25.

Larger investors may do better with a platform charging a flat fee. The cheapest option for an investor with a £100,000 portfolio and making 10 trades a year is Interactive Investor.

For the purposes of this article we have looked at the cost of investing in funds, but if you want to trade shares too you will have to factor those in as well. Thankfully as you usually only pay per trade (with costs falling for more frequent traders) they are – usually- a whole lot easier to compare.

The platforms at a glance

Charges a fee equivalent to 0.35% of holdings up to £250,000. This reduces to 0.2% on portfolios valued between £250,000 and £1 million, effectively meaning if you have more than £1 million invested your costs will be capped at £2,000. There are no additional charges for fund investors; for example, admin or exit fees. Fidelity will also pay exits costs for investors leaving rival providers up to £500. Some AMCs have enhanced discounts.

Hargreaves Lansdown:
Charges a fee of 0.45% on portfolios up to £250,000, reducing to 0.25% for portfolios up to £1 million, 0.1% up to £2 million and zero above that. To justify fees that do appear higher than the market average Hargreaves has negotiated lower annual management charges on some of its funds. It claims that the average AMC of its funds will be 0.65% compared to a market average of 0.76%.

A super cheap 27 funds will have an average AMC of 0.54%. This means the exact cost of investing with Hargreaves will depend on the funds selected. Investors should also watch for additional charges for things including exit fees, corporate actions and requests for paper statements.


Charges a fee of 0.4% on funds up to £250,000. Those with funds between £250,000 and £1m pay 0.2%. No fees apply to holdings in excess of £1m. No new fees have been introduced and there are no additional charges for holding specific investments like ETFs and investment trusts. It has negotiated an average annual management charge of 0.66% on its Premier Selection of funds.

Barclays Stockbrokers:
Charges a fee of 0.35% (minimum payable £35) on portfolios up to £500,000 with no other transaction charges. However it will levy a £30 annual fee for holding an Isa.

Interactive Investor:
Charges a quarterly fee of £20, but this includes two free fund or share trades in that period. These are charged at £10 to buy and sell thereafter. All fund commission is rebated. Exit fees apply.

Cavendish Online:
Charges 0.25% on all portfolios and no exit charges for funds.

Charles Stanley Direct:
Charges 0.25% on holdings up to £500,000, reducing to 0.15% on funds in excess of that.

Alliance Trust Savings:
£18.75 a quarter plus VAT, plus a £12.50 charge every time you buy a fund. Exit fees apply.

This new market entrant charges a simple and straightforward 0.35% on all portfolios with no additional fees.

The Share Centre:
Fee is £4 a month – or £48 a year- plus VAT. Dealing commission is 1% per trade (minimum £7.50)

AJ Bell, You Invest:
0.2% a year (capped at £200) plus a fee of £4.95 every time you buy a fund online. Exit fees apply.

AXA Self Investor:
There is no charge to invest with AXA until 1st May 2015, after which point a 0.5% fee will apply. There are no exit fees or charges to buy and hold funds.

How the different platforms compare for different portfolio sizes

(Assumptions: all money invested in funds, £10k portfolio includes 1 trade a year, £20k, 5, £50k, 7 and £100k, 10)

Portfolio size £10k £20k £50k £100k
Hargreaves L £45.00 £90.00 £225.00 £450.00
ATS £115.00 £215.00 £265.00 £340.00
AJ Bell £29.90 £89.50 £169.30 £299.00
Charles Stanley £25.00 £50.00 £125.00 £250.00
Interactive Investor £80.00 £80.00 £80.00 £100.00
The Share Centre £157.60 £229.00 £259.00 £304.00
AXA Self-Investor £50.00 £100.00 £250.00 £500.00
Fidelity £35.00 £70.00 £175.00 £350.00
Cavendish £25.00 £50.00 £125.00 £250.00
rplan £35.00 £70.00 £175.00 £350.00
Barclays £35.00 £70.00 £175.00 £350.00
Bestinvest £40.00 £80.00 £200.00 £400.00
Chelsea Financial Services £60.00 £120.00 £300.00 £600.00

(Source: The Lang Cat)