FIRE the Fees: free share trading coming to the UK (Trading 212 & FreeTrade)

If you are like me, you’ve probably spent a fortune on trading fees over the years.  You don’t always see it but they are there.  Now some fee-free platforms are available to UK investors like Trading212.

As much as I don’t like the DailyMail, their “This is Money” section is actually quite good – and free to use unlike other sources like The Telegraph, The Times or FT.  I normally have a look through it every week or so – even if most of the articles are not very informative, they sometimes come up with some good stuff.

I read this article about two new (to me) investment platforms that allow you to buy and sell company shares without incurring a broker charge; part of the Fintech revolution that’s hitting investing. On the face of it this seems like great news for the average private investor.  Trading 212 and Freetrade platforms don’t charge a penny when you are trading shares.  Sounds too good to be true? Well, the costs for platforms to trade is actually a lot less than the £10 or so that you might be paying at the moment – maybe only around £1.  These platforms also pool investments and buy once per day to keep costs down.  They also hope to pick up some money from investors who pay for more services that they offer.  This is a good example of a fremium model and it’s common across other fintech products.  Keeping costs low and betting on a bit of bait and switch means that they can get away with charging nothing (not too different from HL’s bait and hook model.

So what are they offering?

Selfing

Freetrade has quite a simple pricing strategy; they are free.  Of course, not everything is free but you can use their account to deposit, withdraw, trade, hold investments and reinvest dividends without it costing you anything.  At the moment their ISA is free but that will cost £3/month from July – which is still cheaper than Hargreaves Lansdown.

If you want to trade instantly the charge is £1 per trade and all trades have stamp duty to pay (if applicable – ETFs are exempt)

For Trading 212 it’s broadly similar.  No costs for buying, selling, reinvesting dividends, holding assets or account administration.  They have a helpful table that shows how much you could save by using them.  I maybe trade 20 times a year with HL and they are costing me £119 – so moving to them would save me that £119 which is about 0.25% annually.  That’s a lot to me and adds up to about 2 days FIRE spending money.

Trading 212 allows you to get involved in CFDs if you like with them – I would not recommend it but it’s up to you – it’s a great way to make/lose money.

trading 212 fees

Trading 212 offers the ISA as well but without the charges.  Using them will save you money.  You can compare them to Hargreaves Lansdown, Barclays and II in the table below:

trading 212 ISA

What’s GFF position?

Well, GFF has a number of accounts across different providers.  I had been with HL since they gave me a welcome gift many years back but I moved my SIPPs and ISAs from them when I switched to YouInvest about two years ago.

Hargreaves Lansdown: Share trading account (1 for GFF) (includes VCTs)

AJBell/Youinvest: SIPPs, ISAs, LISAs (one each for lady & GFF )

I make about three trades a month across these platforms but I am trying to keep things simple and have regular investments which only cost £1.50 a go.  That said, I’m paying hundreds of pounds a year in trading fees.  VCTs are different and I’m keeping my HL to hold these

Why Fees Matter

There is a good reason to want to reduce the cost of your fees when it comes to investing.  Since most active funds are not able to beat the market, the strategy that I and many others in the FI community have is to invest in ETFs.  These tend to have lower fees and since: market return less fees = your return, keeping fees to a minimum is important.

Swapping from an ETF that charges 0.50% a year to one that pays 0.20% a year saves you £2.50 on each thousand pounds invested. Here is a great tool for calculating the impact of fees.

If you think long term and compound that saving; an initial £50,000 investment with £500 a month added over 25 years @8% growth will give you £765,400 in the end with 0.2% fees and £721,500 with 0.5% fees.  That is a difference of over £40,000 – almost as much as your initial investment.

AJBell/YouInvest had a day of fee free trading using their mobile app last year.  That was good for me as I have a number of accounts with them with small pools of money.  It doesn’t make sense to buy £100 of ETFs when the trading fee is £9.95 – or even £1.50 if it is a regulat investment.  I was able to mop up those pools and reinvest.  It was good to do this but AJBYI told me that they have no intention to run this promotion again.

Conclusion and What I’ll do

The absence of a very wide ETF choice puts me off a little, however it has enough for me right now to mix and match with platforms/accounts. I think that I’ll switch to use Trading 212 now in preference to Hargreaves Lansdown for my Steps in the right direction non-ISA investments – that should save me £1.50 at least.  I’ll also think about the either opening new ISAs or transferring our existing ISAs across.  I’ll dip my toe into the water first with the trading account though.

Neither Trading 212 or Freetrade offer SIPPS/LISAs yet, so I can’t move them and my ISA charge at Youinvest is only £30 a year per account or about 0.12% – there’s maybe lower hanging fruit.  HL & Youinvest may come back with a reduction in their charges in due course.

Some users might like the functionality of an App for investing.  I’ve used it before and I’m getting used to the idea.  The safety and security needs to be looking into in more detail.  They are fully approved and regulated but it’s good to check first. I’ve previously tried to keep costs down by investing regularly and paying £1.50 instead of £10 – but this is infrequent (needs to be once a month), inefficient (funds are depoisited days before investment) and awkward.  Being able to invest at zero cost means I can invest £100 today, £250 tomorrow and £50 next week as and when money comes in.  Selling out should be (in theory) just as easy.

Finally, cost shouldn’t be the only factor you have in mind when choosing an investment platform.  There’s things like range of investments, customer service, accessibility and ease of use.

 

4 Comments

  1. Funnily enough, I will be doing a full review of Freetrade at some point soon. Am currently beta testing the Android version and I think it will be a game changer. Placed my first stock purchases today and felt a bit giddy as there were no fees!

    Liked by 1 person

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