Oct 302013
 

Update 04/01/2014: I’ve done a small update on this article to reflect AJ Bell Youinvest/Sippdeal’s increased FX costs and Alliance Trust Savings’ increased ISA fee.

 Update 30/11/2013: Sippdeal has announced an increased FX fee (as well as rebranding as AJ Bell Youinvest) – see this post for more. I’ll update the comparison table when I have more details, but it looks like it will no longer be the cheapest option, although the lack of an ISA admin fee should still make it one of the cheapest for smaller ISAs. For now, adding £57.6 to the figures below should give you the estimated annual cost under the new charges.

Since quite a few UK stockbrokers have changed their fees over the past year, I’ve updated my calculations for the cheapest ISAs for buying international stocks.

Full details of charges, changes and costs are listed in the tables below, but the main conclusions are:

  • Sippdeal now appears to be the cheapest for dealing in foreign stocks that can be traded as CREST Depository Interests (ie major US, Canadian and European companies). It also offers some other markets that can’t be settled in CREST, although these will be more expensive.
  • The main caveat to this whether Sippdeal’s current pricing structure – no account fees, no inactivity fees and no custody charges for CREST-settled stocks – can continue in the post-RDR world. I would not be surprised to see some kind of account fees come in over the next year or so, but I would expect the firm to remain one of the most cost-effective.
  • iDealing comes in as only slightly more expensive than Sippdeal, due solely to the annual account fee it charges. It does not offer the non-CDI markets that Sippdeal offers, making it a slightly less flexible option.
  • Following AJ Bell Youinvest’s increase in FX commissions to 1% (from 0.5% or less – depending on deal size – previously), it no longer offers such a cheap service and is now beaten by iDealing. Youinvest offers a a wider range of markets (ie the ability to access some non-CREST markets – iDealing may be willing to deal in some other markets on request, but is likely to require fairly large deal sizes), still remains one of the cheapest options and gets consistently good feedback for customer service, but can no longer be said to be the standout choice.
  • Saxo Bank (or Saxo Capital Markets as it’s gradually rebranding itself) is relatively cheap, but has restructured its ISA service since last year. The mass-market Modern Wealth Management offering has closed down, to be replaced by an ISA offering on the main Saxo Trader platform. This offers more markets but carries a high £50,000 minimum account size for an ISA (the regular Saxo trading account still requires a lower minimum of £5,000 in the UK)
  • Very broadly, holding US and European shares in an ISA can make sense for most investors using the cheapest brokers, but holding shares from other markets will arguably only be cost effective for larger investors.

Estimated ISA costs for foreign stocks

The table below lists estimated costs under three scenarios: Investing your yearly allowance in 12 equal monthly amounts, in four quarterly amounts or in one single investment.

 ISA A - invest £960/monthISA B - invest £2,880/quarterISA C - invest £11,520/year
AJ Bell Youinvest£235£155£125
Alliance Trust£731£411£291
Halifax Share Dealing£271£176£140
Hargreaves Lansdown£384£289£230
iDealing£196£117£70
Interactive Investor£235£195£195
iWeb Share Dealing£233£193£178
Motley Fool Share Dealing£355£215£163
NatWest Stockbrokers£470£310£280
Saxo Capital Markets£213£133£103
Selftrade£294£194£159
Share Centre£230£230£201
Stocktrade£347£231£219
TD Direct Investing£440£300£243

While I think this generally gives a fairly good idea of the relative cost of each broker, it depends on some simplifying assumptions to make it manageable. For example:

  • Where brokers offer at least some markets for online trading, it uses the online rates.
  • Where they offer some stocks as CDIs and others for overseas settlement, it uses the CDI rates.
  • All calculations are based on standard dealing rates rather than any frequent trader rates that a firm may offer.
  • For Saxo, which has different trading commissions for different markets, the calculation assumes a commission of £10 per trade, which should be typical for most markets for deals of this size.

As a result, one can imagine specific situations where costs would be very different. For example, holding an ISA portfolio that consists entirely of non-CDI Asian stocks with Sippdeal would change costs to £508/£189/59 £475/£235/£145. For Stocktrade, the difference would be even greater at £947/£431/£269.

In these circumstances, the relatively expensive TD Direct Investing/NatWest Stockbrokers service could become more competitive for some investors. Conversely, a portfolio with TD Direct/NatWest that holds a heavy proportion of Swedish or Swiss stocks would be more expensive than the figures above, because these markets are only available for telephone dealing at relatively high rates.

However, in practice, I suspect most investors are going to be holding a fairly diversified portfolio that’s predominantly in US and European stocks, so the figures above should be a reasonable reflection of how cheap or expensive a given broker will be on average.

Major changes since last year

Since a number of firms have changed their charges and services quite significantly since last year, it’s worth briefly summarising which have had the largest impact on the table.

  • Saxo – which came out as cheapest last year – has completely changed its ISA offering. The result is that a wider selection of markets are available in a Saxo ISA, but the minimum account size of £50,000 will put it out of contention for many investors. The zero FX margin terms of the old ISA has been replaced with the usual Saxo Trader 0.5%, which is not high compared to peers, but means that it’s no longer the cheapest solution for US and European stocks.
  • iWeb has increased its FX rate to 1.5%, while the Halifax and Motley Fool brands – which are the same underlying service – have left their charge unchanged at 1%. Taken with a cut to the annual ISA fee on the Halifax brand, this means that iWeb is no longer automatically the cheapest of these three and the best choice will depend on your trading pattern.
  • Stocktrade has completely changed its service and fee structure for international stocks. The key changes amount to a) many international stocks are now available online rather than by telephone only b) dealing commissions and fixed costs for international trades have generally fallen and c) FX fees have increased and moved onto a tiered structure. Overall, the outcome seems to be cheaper for smaller deal sizes, but possibly more expensive for larger ones.
  • I’ve added Share Centre to the table for the first time. It deals in CREST-settled foreign stocks and says that it adds no additional FX commission to that added by the market maker, so I’ve used the same 0.5% market maker mark-up used in the calculations for Sippdeal and for iDealing (which employs the same model). However, Share Centre’s monthly account fee will generally make it a bit more expensive.
  • Update January 2014: AJ Bell Youinvest/Sippdeal has increased its FX fee from 0.5% or less (depending on deal size) to 1%. This represents a significant increase and makes it noticeably more expensive than iDealing. However, the £10 supplement for non-CREST stocks has gone (with the cost incorporated in the higher FX charge), making it slightly cheaper than before for smaller trades in non-CREST stocks.

What the brokers offer

One further complication is that cost isn’t everything – your choice depends on whether a given broker offers the markets you need. For the US and major European markets, that’s straightforward – but if you want to hold Asian stocks, for example, the choices narrow greatly.

Each stockbroker’s entry in the broker directory lists the markets that I understand they can trade – although unfortunately this is often less certain than you think. Some of the more flexible brokers may be able to trade other markets, especially for larger trade sizes. Others may trade a specific market, but not offer all the stocks in it.

For easier comparison, the slightly unwieldy table below summarises markets traded and costs (including FX costs) for each of the brokers. Click through for fuller details of each broker. Note that the table focuses on standard dealing rates only and does not include any frequent trader rates, although these are detailed on the individual broker pages.

However, be aware that just because a broker is able to deal in a specific market, it may not allow stocks from that market in an ISA – that will depend on whether the market is a recognised stock exchange and hence eligible for an ISA, but also on the broker’s own policies.This should not be an issue for mainstream markets, but could be relevant with more exotic ones.

By popular request, I’ve also included their stated costs for transferring out an ISA. However, it’s often not clear whether transferring out some foreign stocks might incur higher fees, so these figures may not be entirely reliable.

 Dealing chargesFX commissionISA costMarkets availableExit fees
AJ Bell YouinvestOnline: £9.95

Telephone £29.95
1% for trades (0.5% when converting dividends to GBP)NoneOnline: CREST-settled markets (ie major stocks in Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, USA)

Telephone: Australia, Greece, Hong Kong, Japan, Singapore, South Africa
£25/holding
Alliance TrustOnline: £12.50

Telephone: £40
1.3%£22.5/quarter (plus custody charge for international stocks of 0.05% every six months)Online: UK

Telephone: Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Netherlands, Norway, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, USA
£120
Halifax Share DealingOnline: £11.951%£12.5/yearOnline: Belgium, France, Germany, Italy, Netherlands, UK, USA (all online)£25/holding
Hargreaves LansdownOnline: £11.95Up to 1.7%0.5%/year (max £45)Online: CREST-settled markets (ie major stocks in Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, USA)£25/holding
iDealingOnline: £9.9Up to 0.5% from market maker£20/yearOnline: CREST-settled markets (ie major stocks in Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, USA)£60 plus £15/holding
Interactive InvestorOnline: £101%£20/quarter, offset against trading commissionsOnline: CREST-settled markets (ie major stocks in Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, USA)£15/holding
iWeb Share DealingOnline: £51.5%None (although there is a one-off £25 account opening fee)Online: Belgium, France, Germany, Italy, Netherlands, UK, USA£25/holding
Motley Fool Share DealingOnline: £17.51%£30/yearOnline: Belgium, France, Germany, Italy, Netherlands, UK, USA£60 plus £25/holding
NatWest StockbrokersOnline: £20

Telephone: £50
Up to 2%£30/year for accounts under £15,000 (waived if you trade once per quarter), no fee aboveOnline: Australia, Belgium, Canada, France, Germany, Hong Kong, Ireland, Italy, Netherlands, Singapore, Spain, UK, USA

Telephone: Sweden, Switzerland
£60 for whole account transfer or £25/holding for partial transfers
Saxo Capital MarketsOnline: Europe - all 0.1% (Denmark min DKK29, Eurozone min €12, Norway min NOK65, Sweden min SEK65, Switzerland min CHF18, UK min £20); Canada C$0.02-0.03/share (min C$25); USA US$0.02/share (min US$15); Australia 0.1% (min A$15); Hong Kong 0.1% (min HK$150); Singapore 0.15% (min S$25); South Africa 0.25% (min ZAR100)0.5%£35/year (but note £50,000 minimum account size for an ISA)Online: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Italy, Netherlands, Norway, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, UK, USA€25/holding for Danish stocks, €50/holding for other stocks (max €160)
SelftradeOnline: £12.5Up to 1.25%£10.5/quarter inactivity fee (covers all accounts)Online: Belgium, Canada, France, Germany, Italy, Netherlands, Portugal, Spain, Switzerland, UK, USA£15/holding
Share CentreOnline and telephone: 1% (min £7.5) OR £7.5 per trade plus £24/quarter dealing option feeUp to 0.5% from market maker£4.8/monthOnline: CREST-settled markets (ie major stocks in Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, USA)£25/holding
StocktradeOnline and telephone: 0.4% (min £14.5, max £50), plus £50 overseas settlement charge for foreign stocks that cannot be held in CRESTUp to 1%0.5%/year (min £30, max £180)Online: CREST-settled markets (ie major stocks in Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, UK, USA)

Telephone: Australia, Hong Kong, Indonesia, Japan, Malaysia, New Zealand, Philippines, Poland, Singapore, South Africa, Thailand
£15/holding for UK stocks, £90/holding for other stocks. £80 closure fee if closed in first year
TD Direct InvestingOnline: £17.5

Telephone: £57.5
Up to 2%£36/year for accounts under £5,100, no fee aboveOnline: Australia, Belgium, Canada, France, Germany, Hong Kong, Ireland, Italy, Netherlands, Singapore, Spain, UK, USA

Telephone: Sweden, Switzerland
£60 for whole account transfer or £35/holding for partial transfers

  4 Responses to “Best ISAs for international stocks October 2013”

  1. Good article as usual Cris. one comment about the FX commission from iDealing.

    Not sure if they’ve changed recently as well, but they told me that their FX rate is typically 1% variance from inter bank rate rather than 0.5%, maybe that affects the figures in the table from 2013 onwards?

    • Is it possible that refers to their rate for converting between currencies for cash balances within the account? I know the commission for that is 1%. However, the rates above are based on trading foreign stocks as CDIs settled in sterling through a market maker and since iDealing don’t – or didn’t when I asked – get any rebate back from the market maker on that, the additional cost should be the market maker’s standard spread (ie starting at about 0.5% and falling for larger deals).

      Converting to foreign currency and settling in that would produce different figures, but I’ve ignored it in this comparison since you can’t hold foreign currency in an ISA and need to convert from and to sterling on each trade. It would be worth looking at in a non-ISA account though.

      • I just reviewed the email and you are correct. It seems they were referring to a 1% commission if you want to convert sterling to a different currency in order to trade in a foreign security.

        As for the market maker’s spread, they just mentioned a “competitive rate”… which aligns to the value of 0.5% you mentioned above.

        Thank you Cris!

        • Yes, as far as the market maker’s spread goes, Sippdeal told me a while back the usual rate is:

          0.5% for trades up to £10k
          0.35% for trades up to £50K
          0.25% for trades up to £150K
          0.1% for trades over £150K

          So I use that as a basis for any broker where I’ve been told that investors just pay the standard spread on CDIs (as opposed to the more common situation where the market maker adds an extra commission into the spread that they then pass onto the broker).

          That said, I know that Stocktrade’s new service involves a different pricing agreement with the market makers (focusing on fees rather than FX spread), so I wonder if this may change in future.

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