How a self-select ISA puts you in control

Rather than letting a fund manager look after your stocks and shares individual savings account, you might prefer to take on the job yourself with a self-select ISA.

These are available from stockbrokers and share-dealing firms and allow you to pick from a broad range of investments to build a portfolio that suits your needs.

Among the investments that are available for self-select ISAs are shares; unit trusts and open-ended investment companies; investment trusts; exchange traded funds and exchange traded commodities; and gilts (government bonds) and corporate bonds.

It's also possible to hold cash in your self-select ISA: for instance, if you have sold shares in a company but haven't found a new home for the investment – although this isn't actively encouraged by HM Revenue & Customs.

If you do this, you'll be paid interest on the balance, although this is generally fairly low and subject to tax. For example, Hargreaves Lansdown pays 0.1% gross on balances between £7,000 and £50,000.

Because the investment decisions are left to you, this approach suits the more experienced investor who is comfortable investing directly in shares and happy to take a more active role when investing. 

You've also got to be comfortable with the cost of holding these investments as, paradoxically, the do-it-yourself approach can be more expensive than handing the management over to the professionals.

To build a diversified portfolio you need to invest in a variety of investments, each of which will incur dealing charges whenever you buy and sell.

For example, taking £10 as the dealing charge, if you made two transactions a month on your self-select ISA you would run up a bill of £240 a year in dealing charges alone. On an ISA worth £10,200, this works out at an annual charge of 2.35%.

Charges and fees

With a range of different charges and fees, it's important to spend some time comparing self-select ISA accounts to pick the one that's right for you.

The first charge you might want to consider is the dealing charge. These vary considerably, starting from as little as £1.50 if you're prepared to limit when you trade, but averaging around the £10 mark for online trading.

Some firms also charge an annual administration fee for your self-select ISA. Among those that do are Hoodless Brennan, which charges £50 a year; IWeb, which charges £23 a year; and ShareDeal Active from Jarvis Investment Management, which charges £50 a year.

You may also be charged according to the balance of your account. Barclays Stockbrokers charges £30 plus VAT on balances up to £7,500 and £50 plus VAT on balances over £7,500. TD Waterhouse uses a different strategy, charging £30 plus VAT if your balance is below £3,600.

Another charge you won't be able to avoid is stamp duty. This is a government levy that's charged at 0.5% of the value of any shares you buy.

Choosing an account

Which account is right for you will depend on how you intend to run your self-select ISA. For example, if you intend to hold shares in your account for a number of years, you might want to consider how much trading you intend to do before choosing an account.

For example, like many other firms, Hargreaves Lansdown runs an active trader account as well as a standard share-dealing account.

This has a quarterly management fee of £12.50, but in exchange for this, all your trades are at a flat rate of £9.95.

In comparison, its standard share dealing account has no additional fees but dealing charges start at £9.95 for trades up to £499.99, increasing to £29.95 for those over £20,000.

Frequent trading

This means you need to weigh up carefully not only how often you'll be buying and selling, but also the size of each trade. For example, if you intend to only buy and sell blocks of shares worth less than £500, the standard account offers better value.

However, if you're more likely to be trading £1,000 of shares a couple of times a month, which costs £14.95 a pop on the standard account, it's worth paying the £12.50 quarterly management fee to bring the trading cost down to £9.95 on the active trader account.

Another important consideration is how you would like to buy and sell shares. Accounts are available online, by phone or through branches, but if you're happy to trade online, you'll usually benefit from lower dealing charges.

For example, on its frequent trader account TD Waterhouse charges £9.95 for online trades but £19.95 for telephone-based ones.

You might also want to weigh up the extras on offer. Some of the online share-dealing firms provide lots of research, such as market reports and share tips, to help you select investments for your ISA.

If you're happy to have less control over when you buy shares, there are even cheaper ways to run your self-select ISA.

Some firms, including Halifax Share Dealing, Interactive Investor and The Share Centre, offer accounts where they amalgamate all the requests to buy each share and then buy in bulk so share-dealing costs are greatly reduced.

For example, The Share Centre charges 1% on these batch instructions, subject to a minimum of £2.50, compared with a minimum of £7.50 on its real-time share dealing account.

Interactive Investor and Halifax go even lower – they charge just £1.50 to buy shares, with Interactive Investor offering free share purchases until the end of June 2010.

Although the charges are low, this form of account does mean you forfeit timing the purchase of your shares. For example, Halifax and Interactive Investor have four days each month when they place orders, so the price of your chosen share could have moved significantly.

But, as timing the market is extremely difficult and prices could move both in your favour as well as against it, this isn't necessarily a huge disadvantage.

And, with all these accounts, you can still deal real-time at the standard prices if an opportunity presents itself that is too good to miss.

Finding a self-select ISA

With so many charges and features to consider, it's important to do your own research. Comparison website can help you compare charges.

It enables you to check out the cost of running an account, allowing you to adjust the number and size of transactions to see how the different services stack up.

The Association of Private Client Investment Managers and Stockbrokers could also help. Its website can help you find a firm to run your self-select ISA. This allows you to search by region for those companies offering an ISA service.

You can find it online at or you can call for information on 020 7448 7100.

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