Shares
The cheapest way to buy, sell and hold

Dot-com fever may be long gone, but millions of people still have and hold shares.  This week's deal is the very cheapest way to buy, sell or hold stocks, possibly saving you over 70%.

For those of us without an Abramovich-sized portfolio, trading shares is less rewarding because of dealing costs; these alone can snack a sizeable chunk off the investment returns.

Execution-only stockbrokers
 
Instant access execution-only stockbrokers, a relatively recent phenomenon, don't give you advice, but simply process your requested transactions.  This reduction in admin charges translates into much cheaper dealing.

Most are ‘nominee' brokers, where the shares are held electronically.  Technically this means the broker owns the shares, but you have ‘beneficial rights', meaning all the gains and losses are yours.

This isn't an issue, except they don't automatically confer qualification for shareholder perks (discounts the company gives its shareholders) or voting rights in company shareholder meetings, though some will if asked.  

Paper Shares - Should I keep them?

As with many aspects of modern life, the internet has made things faster and cheaper.  Generally speaking, dealing in paper share certificates will be significantly more costly than with electronic ones floating around in the ether.  Also, it's difficult to get hold of them these days.

What are the charges?

There are two main types of fee

• Commission.  Simply a fee for buying or selling shares.  The traditional method was to charge a fixed percentage of the transaction amount.  However there are a growing number of ‘flat fee' brokers who charge a set amount regardless of deal size. 
  
  
• Subscription/Annual Fee.  Here you pay the company for holding the shares for you.  Not every company charges this.  With those that do, check out whether it's a fee per share, or fee per account, incorporating all shares.  

How to pick the best shares?  Now if I knew the answer to that….

The obvious question when reading this is ‘what shares should I buy?'  I wish I knew the answer to that.  However, I've put together a special briefing on how to think if you're a newcomer to shares. Special briefing. 
 

Choosing the cheapest

Don't fall for the headline prices; brokers have a number of techniques to make themselves look artificially competitive.

• Low commission, high annual charge.  It's common to offer an enticingly low commission, while earning the money through high subscription charges.
   
• Transfer fees if you switch.  Almost every broker will charge a fee, possibly £20 per stock, for moving your shares to another broker.  This means once you're with a one, you're effectively trapped.
   
• Free intro deals. Ultra cheap or even free dealing for a short period when opening an account is common.  It means the broker is usually guaranteed management fees plus full price commission when you sell so cheap intro-offers may cost more in the long run. 

Other Costs

Shares are subject to a 0.5% tax per purchase which is called stamp duty; also for bigger investors there's a mandatory £1 to the takeover panel (PTM) for all trades worth more than £10,000. 

What's the difference between stocks and shares?

The easiest definition is using the sentence “I own 1,000 shares of Glaxo Stock”.  A share is an individual share in a company, indicating your ownership of that company; a stock is the collective name for all a company's shares.

Who is cheapest depends on whether you're a new buyer, or have existing paper or electronic shares. 

New Buyers

The aim is to find the cheapest broker over the life of the transaction, i.e. the total transaction cost for buying, holding and selling your shares.  Switching brokers is expensive, so often there's little alternative but to plan to stick with one for the long term.

• Online:  The cheapest for almost everyone is Hoodless Brennan.  It has the lowest flat-fee commission charge on the market - just £7 to buy or sell stock - and there's no management fee.  Thus the total transaction cost is just £14 per stock, regardless of the deal size.  However, this is an online only dealing service.
  
  (Note: Don't confuse Hoodless Brennan's share dealing account with its ISA trading account that has a £50 annual management fee)
  
  Not only that but in the first month, all dealing is commission free, so it's worth putting through a rash of deals that way.
  
  In very specific circumstances it can be beaten.  The Share Centre charges 1% commission, with a minimum of £2.50 for buying and £7.50 for selling.  Yet it also charges a quarterly management fee of £2.94 (i.e. roughly £12 a year), regardless of how many shares you have with it.
  
  For those buying and selling four stocks worth less than £700, the share centre can be slightly cheaper.  Yet as it also has some restrictions on cash withdrawals, and doesn't allow you to trade instantly like Hoodless Brennan, it's questionable whether the very small possible savings will be worthwhile. 
   
• Telephone:  If you don't have internet access to keep you up to date with your dealing currently Sharedeal Active is the pick of the bunch, with £9.50 flat rate commission and no subscription charges.  Also the Share Centre prices detailed above are the same for phone dealing.

Both of these brokers will also usually confer perks onto shareholders if you ask them explicitly, unless the PLC refuses.

Advanced MoneySavers note:  Taking advantage of special offers.

While most special intro offers are naff due to the ‘total transaction cost' being higher, sometimes it will work in your favour.  If you were about to buy a large number of shares and there's a ‘first two months' free trading offer, then if the company has no annual management fee and its ‘sell' cost is lower than £14, grab it.

For those with paper shares

While you may like the idea of pieces of paper for your portfolio, when it comes to selling them, the prices hurt. Abbey's Sharedealer Paper Certificate Trader account, which allows trading of paper shares costs a whopping £22.50 per share online, and £25 per share over the phone.   

Transferring them to an electronic account will save you cash.  Luckily with paper shares almost all electronic brokers let you transfer them in for free.

Therefore, it's actually a question of who's cheapest to hold and sell the shares.  The winner again is Hoodless Brennan.  It has no management fee and is just £7 to sell - as cheap as blue chips.

For those already with electronic shares

It's likely your existing broker will charge you to transfer the shares to a new broker, usually more than wiping out the gain from moving.

However some brokers are willing to foot the bill if you transfer your custom to them.  The cheapest that does is Selftrade*; it will compensate you for up to £100 for the costs of moving.  Its own costs are no management fee and £12.50 flat rate per deal.  So compare that to your existing broker.

Advanced MoneySavers Note

Selftrade often operate ‘refer-a-friend' schemes which will pay you a small bonus for encouraging others to use them too.  This is worth checking out, if you can find it.

An alternative to nominee accounts.

Halifax Sharebuilder* scheme is set up for those who want to buy small amounts of shares each month, rather than in lump sums.  The shares are only bought on a fixed day each month, so unlike others it's not real time dealing.

You only pay £1.50 to buy the shares regardless of amount, and there's no management fee. Yet sales are real time, so the price is £5 for amounts under £250 and £11.95 for larger trades. 

Overall this means if you buy small amounts each month, and sell in one go it's a winner.  However invest a lump sum in shares worth over £250, as the total transaction cost is £13.45, you're better off sticking with Hoodless Brennan and the real time dealing.

The size of the saving

The scale of savings can make a real difference to your returns from sharedealing.  For someone trading infrequently, just one buy and sell every few months, the annual dealing cost with Hoodless Brennan is £50 compared to £180 with Citibank, a saving of £130.

LINKS THAT HELP THIS SITE (all have a * in above article)
(this has no impact on product or recommendation - see explanation below)

Selftrade, , Halifax Sharebuilder, Moneysupermarket


LINKS THAT DON'T HELP THIS SITE

Hoodless Brennan, The Share Centre, Sharedeal Active

Selftrade, , Halifax, Moneysupermarket

Explanation