The tables in this post have been updated with new fees and brokers in the Best ISAs for foreign stocks – October 2012 update.
[Updated 23/04/2012 to include the ISA available from Saxo Bank on its Modern Wealth Management platform]
As we saw previously, the mark-up that many stock brokers put on currency conversions can be a very significant extra cost when trading international shares. And while you can’t ignore these hidden fees at any time, they become an especially awkward problem for UK investors who want to buy foreign stocks within an individual savings account (ISA) tax wrapper.
While the ISA rules allow a reasonably large number of overseas stocks, they do not allow you to hold any foreign currency – so you need to go through the conversion between sterling and foreign currency every time you trade. As a result, excessively high FX commissions can become costly even more quickly than usual.
So what are the most cost-effective ISAs for dealing in foreign stocks? The table below shows the charges for the main UK execution-only brokers that offer ISAs and allow foreign stocks in them. (Some major firms – eg Interactive Brokers – don’t offer an ISA at all, while others – eg Barclays Stockbrokers – currently only allow UK shares to be held in one.)
| Dealing charges | FX commission | ISA cost | Markets available | |
|---|---|---|---|---|
| Alliance Trust | £40 | 1.3% | £30/year (plus 0.01%/year custody for international stocks) | Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Netherlands, Norway, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, UK, USA |
| Halifax Share Dealing | £11.95 | 1% | 0.6% (min £31, max £120) | Belgium, France, Germany, Italy, Netherlands, UK, USA |
| Hargreaves Lansdown | £11.95 | Up to 1.7% | 0.5% (max £45) | Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, USA |
| iDealing | London Stock Exchange 0.1% (min £10) + £2.10 per fill, Euronext Paris 0.05% (min €5) plus €0.5 per fill, Chi-X 0.1% (min £10) plus £1.65 per fill, UK retail service providers £9.9/€14.5/US$19.5 | Typically around 0.25% | £20/year | Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, USA |
| iWeb Share Dealing | £10 | 1% | None | Belgium, France, Germany, Italy, Netherlands, UK, USA |
| Motley Fool Share Dealing | £17.5 | 1% | £30/year | Belgium, France, Germany, Italy, Netherlands, UK, USA |
| NatWest Stockbrokers | £20 | Up to 2% | £30 for accounts under £10,000, no fee above | Australia, Belgium, Canada, France, Germany, Hong Kong, Ireland, Italy, Netherlands, Singapore, Spain, UK, USA |
| Saxo Bank Modern Wealth Management | £9.95 UK, 0.15% (min £9.95) international | 0.5% (waived until mid 2013) | £35/year | Belgium, France, Germany, Netherlands, Spain, UK, USA |
| Selftrade | £12.5 | Up to 1.25% | £42/year | Belgium, Canada, France, Germany, Italy, Netherlands, Portugal, Spain, Switzerland, UK, USA |
| Stocktrade | 0.75% (min £17.50, max £60) plus £20 foreign bargain charge plus additional £35 delivery charge for non-CREST eligible stocks | Typically close to interbank rates | 0.5% (min £30, max £180) | Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Indonesia, Ireland, Italy, Japan, Malaysia, Netherlands, New Zealand, Norway, Philippines, Poland, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, Thailand, UK, USA |
| TD Direct Investing | £12.5 | Up to 2% | £36 for accounts under £5,100, no fee above | Australia, Belgium, Canada, France, Germany, Hong Kong, Ireland, Italy, Netherlands, Singapore, Spain, UK, USA |
Be aware that not all firms will be able to trade all stocks on a given exchange. Not all international exchanges are recognised for ISA purposes (see HM Revenue & Customs’ page on recognised stock exchanges if you want to check which ones are). And the information some brokers give out about what they can do and at what cost is often inconsistent. So if you want to invest in anything other than a major US or European company through an ISA, it’s a good idea to check its availability with your chosen broker very carefully before opening an account.
With those caveats in mind, which brokers seem to be the cheapest? As ever, this is hard to work out since the answer will depend on your trading pattern. But the table below compares the estimated costs for three different ISAs invested in US stocks, all totalling the full £11,280 ISA allowance for the 2012/2013 tax year. ISA A assumes you invest £940/month (in a single stock each time), ISA B assumes you make one investment of £2,820 per quarter and ISA C is based on a one-off investment of £11,280.
| ISA A - invest £940/month | ISA B - invest £2,820/quarter | ISA C - invest £11,280/year | |
|---|---|---|---|
| Alliance Trust* | £668 | £348 | £228 |
| Halifax Share Dealing** | £324 | £228 | £192 |
| Hargreaves Lansdown | £380 | £285 | £226 |
| iDealing | £167 | £88 | £58 |
| iWeb Share Dealing** | £233 | £153 | £129 |
| Motley Fool Share Dealing** | £353 | £213 | £160 |
| NatWest Stockbrokers** | £467 | £306 | £246 |
| Saxo Bank Modern Wealth Management | £211 | £131 | £108 |
| Selftrade | £321 | £221 | £196 |
| Stocktrade* | £509*** | £224*** | £139*** |
| TD Direct Investing** | £376 | £276 | £238 |
*Alliance Trust and Stocktrade are telephone dealing services – the others allow most international stocks to be traded online
**The Motley Fool and iWeb services are white labels of Halifax (with different charges that are cheaper in some circumstances), while NatWest Stockbrokers is a white label of TD Direct Investing (and is generally more expensive)
***Stocktrade costs will rise by £35 per trade for stocks that can’t settle in CREST (this won’t affect most major US and European ones, but will apply to most other international markets) – costs would become £929, £364 and £174 respectively
On first glance, iDealing and iWeb look like they will be the cheapest for many US and European stocks. If you want to hold stocks from some less widely-offered markets in an ISA, you may not have much choice – it will come down to which broker can trade on that exchange.
Firms such as Alliance Trust and Stocktrade look relatively uncompetitive high due to high minimum charges or fixed costs, but would become better value at larger trade sizes. For investors with specific requirements and larger portfolios, traditional full-service brokers such as Charles Stanley may also turn out to be more cost-effective and flexible than discount brokers.
When comparison shopping for ISA, be aware that many firms will charge a fee to close an ISA. What’s more, of course, it’s only possible to open a single stocks and shares ISA in each tax year, although you can transfer an open account to a new provider. So try to make sure you’ve picked the right one for your needs before opening an account – test-driving several providers is likely to be more expensive and inconvenient than with a regular trading account.