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.How to pick the best shares?
Now if I knew the answer to that….
I'm a MoneySavingExpert, not an investment expert. There are enough stockbrokers and Independent Financial Advisors purporting to tell you what to invest in. However, do treat whatever they say with a strong degree of scepticism.
This isn't some churlish jealousy, but a warning that while money saving is often a science, investment is often an art. While I can tell you with a strong degree of certainty the cheapest specific use credit card for today, no one can tell you what the best performing share over the next year will be.
Their advice combines suspicions, research, and educated guesses, but not cast iron knowledge. If they did know, the market wouldn't be a market.
That's why the stockmarket is all about risk. The risk that you may gain versus that you may loose.
Should you be investing in shares?
Maybe you're willing to take the risk, but buying shares in individual companies isn't necessarily the place to start. In fact it's an extremely high risk investment even if you're buying shares in a very big well known company. Read the Discount Brokers article for help on cutting the cost.
The fact is share prices move all the time. It's a sophisticated game, with many people with huge resources putting their money in. You're up against the big boys and girls, and even they don't know what they're doing.
If you are a first time investor, it's worth considering a collective investment like a unit trust or investment fund rather than single shares. Here you're effectively buying an investment in a whole host of shares which means you're spreading and lowering the risk somewhat.
Alternatively for an even safer investment a Guaranteed Equity Bond allows you to get returns from the stockmarket, but with the guarantee you will get all your cash back if it falls.
Don't be emotional when it comes to shares
Shares are an investment. People tend to give the market all kinds of properties it shouldn't really have. Let me use a very common question to help explain
Q. I bought/was given shares in Company X a few years ago. The value of this investment has now plummeted. Should I sell it or hold on?
A. Don't consider the investment as an amount lost. For the sake of illustration let's imagine it was worth £4,000 and is now worth £2,000.
The big problem is that many people then think "how do I recoup my losses?" Yet it just doesn't work this way. There is no “what goes down must come up” rule. You have to let go of the past value and clinically think “I have a £2000 investment in company X”. Forget whatever it was worth and make the decision on this alone.
This means the real question to ask yourself is “would I be willing to invest that £2,000 in the stockmarket right now, and if I did is this the investment I would choose?” There is no difference in the risk profile between buying a share new, or having a share that you've held for a long time, it doesn't change the chances of what will happen. So considering it to be a fresh investment is the only way to go.
Where to find information
If you are going to buy shares then do your own research. Read as much as you can. Understand the company you're going to invest in and how the markets work.
A great book is the ‘How to understand the Financial Pages' (Use a price comparison shopbot like Bookbrain) which is a stalwart for getting a handle on this. However, for company to company information, the web rules.
The following are all sites worth checking out. While I'm not a big fan of their ‘personal finance' sections, as they tend to be commercial driven and only include referrals to companies that pay them, their share stuff is much better.
For starters why not try:
ADVFN
iii
Motley Fool
Citywire
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.
The UK's Cheapest Brokers
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 £8 to buy or sell stock - and there's no management fee. Thus the total transaction cost is just £16 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)
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.
Commission | Holding shares | Transfer | ||||
Purchases | Sale | Shares In (paper/electronic) | Shares Out | Funds to Bank | ||
Hoodless Brennan | £8 | £8 | Free | Free | £15 | Free, via BACs |
1% (min £2.50) | 1% (min £7.50) | £2.94 Quarterly | Free | £15 | Free Quarterly, (£25 for instant) | |
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 £8 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.
Daily Updated Online Share Dealers Best Buys
Share dealing prices used to be hotly competitive, yet over the past couple of years the prices of the top players have remained fixed. Rates don't change often. What if rates change? That's the idea of the link below, which takes you to Moneysupermarkets' comparison service. Anything to watch? Yes. Moneysupermarket is profit-driven, and lists most but not all best buys depending on commercial relationships. Plus It gives simple lists of top rates, so ensure you check the possible pitfalls in this article for yourself first. By far the best practice is try the products listed in the article before using this comparison. | ||
| Moneysupermarket | GO | External Price Comparisons* |
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 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.
Annual Cost of Share Dealing (1)
Low Use (2) | Mid Use (3) | |
Citibank Sharedealing | £180 | £800 |
Hoodless Brennan | £50 (4) | £340 (5) |
(1) Cost of dealing including Commission, Subscription and Stamp Duty (2) 1 buy & sell per quarter, mean value £250 (3) 5 buys & sells per quarter, mean value £1000 (4) £10 +Vat Quarterly subscription, Commission 0.4% min £16.50 (5) 1st trade done during commission free first month (6) First 3 trades done during commission free first month | ||
Ask a Question / Forum Discussion
Always double check the product details before signing up to them
Spotted out of date info/broken links? Let us know via brokenlink@moneysavingexpert.com
LINKS THAT HELP THIS SITE (all have a * in above article)
(this has no impact on product or pick - see explanation below)
Halifax Sharebuilder, Moneysupermarket
Explanation (of * links)
How this site is funded. Two types of contacts are listed. The first, which all have a * within the main body of the articles, help MoneySavingExpert.com stay ad-free and free to use, as they're ‘affiliated links' which invisibly take you usually via affiliate linkage or commercial money sites, which then pay this site. The second type doesn't help and therefore doesn't have a *.You shouldn't notice any difference, the links don't impact the product at all and the editorial line (the things we write) is NEVER impacted by the revenue. If it isn't possible to get an affiliate link for the best product, it is still included in exactly the same way. For more details read how this site is financed.
LINKS THAT DON'T HELP THIS SITE
(please only use if necessary)
No * Link Available: Hoodless Brennan, Selftrade, Sharedeal Active, The Share Centre
Duplicate links of the * links above for the sake of tranparency, but this version doesn't help MoneySavingExpert.com:
Halifax Sharebuilder, Moneysupermarket
