How self-select stocks and shares ISAs work

Ed Bowsher looks at the ISAs that give you the most freedom - self-select ISAs.

In the last couple of weeks I've written about the best Cash ISAs and the best stocks and shares ISAs. But I've so far ignored what are perhaps the best ISAs of them all – self-select ISAs.

Before I go any further, I should say that self-select ISAs are really a sub-group within stocks and shares ISAs. However, they're a very attractive sub-group, and are arguably more attractive than more mainstream stocks and shares ISAs.

With a conventional stocks and shares ISA, you buy an ISA from a big fund management company such as Fidelity and invest in funds that are offered by that company. This can work very well - especially if you invest in low-cost index tracker funds such as the Fidelity Moneybuilder UK Index.

But I prefer to go for stocks and shares ISAs that offer me more freedom – and that means self-select ISAs. With that freedom, I can buy shares in individual companies as well as bonds and funds from more than one provider.


So let's look at some of the most popular self-select ISAs:

1. The Share Centre
The Share Centre offers you a self-select fund ISA where you can invest in more than 3,000 funds. It's called The Share Centre Fund ISA. Costs are low as you won't have to pay an annual admin fee to The Share Centre while the dealing charge is just 1% with a £7.50 minimum. You'll also get discounts on the charges imposed by the fund management companies.

With this ISA you could invest in top quality tracker funds from Fidelity and HSBC as well as the best actively managed funds. (Actively managed funds employ fund managers and hence have higher charges than trackers.)

The Share Centre also offers a Self Select Stocks and Shares ISA. You still have the freedom to invest in more than 3,000 funds, but you can also invest in individual companies and bonds.

That extra freedom comes with a cost – you'll have to pay an admin charge of £12.50 a quarter – but the extra freedom may enable you to make a bigger return on your investments.

Finally, if choice isn't your priority, The Share Centre offers a rather nice 'keep it simple' ISA. It's called The Ready-made ISA. There's no admin fee and no dealing charge either!

Your choice is limited to three funds – the SF Cautious Fund, the SF Positive Fund, and the SF Adventurous Fund. The big plus point for all three funds is that they offer diversification. The cautious fund doesn't just invest in shares, it also invests in bonds, while the other two funds offer diversification by investing in companies around the globe.

2. Hargreaves Lansdown
The Hargreaves Lansdown Vantage Stocks and Shares ISA allows you to invest in over 2,500 investment funds as well as shares, bonds and the rest.

Hargreaves Lansdown doesn't impose an admin charge for any investments you hold in funds, but there is an admin charge for shares and other investments – 0.5% a year with a £45 cap. Dealing charges vary between £5.95 and £11.95 depending on the number of trades you do each month.

As with The Share Centre, you'll get discounts on the fund management companies' charges, but Hargreaves Lansdown does impose a 'platform fee' for some index tracker funds – either £1 or £2 a month depending on the fund.

So if you invested £1,000 in the Vanguard UK Equity Index fund – one of the cheapest index trackers - you'd only have to pay a 0.15% annual charge to Vanguard. But, thanks to the £2 monthly fee, you'd effectively be paying a 2.4% annual charge to Hargreaves Lansdown.

However, if you were able to invest £10,000 in the fund, the charge would be much more reasonable, working out at 0.24% a year.

3. Alliance Trust Savings
The Alliance Trust Stocks and Shares ISA is a full self-select ISA, so you have the freedom to put your money in the full range of potential investments. The annual admin fee is on the high side at £25, but you also get a free online trade each year. Further online trades cost between £6.25 and £12.50 a go – depending on the size of the trade.

You can also get good discounts on the fund managers' charges and you won't have to pay any platform charges for trackers. If you fancy one of Vanguard's funds, Alliance Trust is probably your best bet. That's because the Vanguard funds are only available at Hargreaves Lansdown and Alliance Trust, and you won't have to pay a platform fee at Alliance Trust. Read more about Vanguard in Index tracker sales jump.

Discounts
So far I haven't looked in any detail at the discounts you can get on the fund management company's charges.

If you buy an actively managed fund direct from the fund manager, you'll normally pay an initial charge that is around 5%. Then on top of that, you'll pay an annual management charge plus some other costs that make up the Total Expense Ratio (TER). Typically, the TER is around 1.8% a year.

However, if you buy your fund as part of a self-select ISA, you'll get big discounts on both charges. So here's a comparison of what charges you'll pay on three popular funds.

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