I guess this is all just what people feel more comfortable doing personally and @PigeonStrangler has explained their reasons for not using the ISA.
However, just as the ISA limits are subject to change by future governments, so too are the tax free amounts for interest/dividends and capital gains. Theyāre not going to stay at Ā£1k/Ā£11.7k forever, just as ISA limits wonāt stay at Ā£20k forever. Call me pessimistic but I can only see the limits being reduced hence I view ISAs as a āuse them or lose themā.
Interesting thread, learnt a quite a bit from both sides of the debate above. A tad late but just came across this and they call some of what you were discussing the ādividend tax trapā :
UK investors should watch out for a Ā£90,000 ādividend tax trapā.
If investments are held outside an Isa or pension, tax is payable on dividend income exceeding Ā£2,000 per year ā which dropped from Ā£5,000 in April 2018.
āBefore the cut, you could hold around Ā£135,000 of UK shares outside an Isa before paying any tax on dividends, today itās just over Ā£46,500,ā says Sarah Coles, personal finance analyst at Hargreaves Lansdown.
āIn the twinkling of an eye, the amount you can hold outside an Isa or pension without facing dividend tax has plummeted almost Ā£90,000.ā
I think most people are with you, the ISA pricing puts it past most peopleās needs. Understandably, though, Freetrade need to make money. ISA management takes man-hours, so they need to recoup some costs somewhere.
Ā£3 a month is high for a small portfolio, but imagine if your portfolio is in the Ā£10,000+ range. Ā£36 a year is suddenly quite reasonable! Asking a company to take less in fees while performing the same duties irrespective of portfolio size is less fair. If we want Freetrade to succeed and disrupt the market, we have to concede some aspects
I meant more to say that youād need a sizeable portfolio before Ā£36 a year becomes cheaper than anywhere else, for example a Ā£10,000 portfolio with HL would cost you Ā£45 a year (even if you never made a trade)
And where they sting you is they separate funds and shares into separate charges, so if you had (for arguments sake) Ā£15,000 in funds and Ā£5,000 in shares, youād be charged Ā£90 a year across the two.
So regardless of portfolio growth, Freetrade is cheaper, my point is the totally free platform is great, and an ISA isnāt worth it unless you have super gains.
Absolutely, but at the same time, we as investors should not be concerned with giving money to companies just because we like them. Which is to say, Freetrade is not a charity.
Itās a business, and it could make a choice to adjust its pricing strategy to acquire more paying customers (each perhaps paying less than Ā£3/month on average, but at least more than Ā£0, for an overall increase in revenues).
As it stands, for the person who does a lump sum investment once a year and maybe dividend reinvestment quarterly, other platforms like iWeb are cheaper and have more essential features.
For the person doing small monthly investments in a single fund, Halifax share dealing might be similar in cost or cheaper. And again, offers more essential features.
Freetrade is only the cheapest platform to run when you do lots of trades or have invested around Ā£15k+.
Now, no one said Freetrade has to be the cheapest platform in all scenarios. But they could be, and potentially even while increasing their revenues compared to their current pricing strategy.
I agree with this sentiment. I think Freetradeās Isa pricing model needs a rethink because it runs counter to its stated mission of making investing accessible in the following senses:
Accessible to those with only a small amount of money to invest.
Accessible to those who feel they have low financial literacy or are just starting out.
Letās say, for example, I only have Ā£100 to invest. With Vanguard it would cost 0.15% (15p) a year whereas Freetrade would take a whopping 30-36% (Ā£30-36) cut ā about a 20,000% increase.
Clients can, of course, use a GIA, but it is important to note that ā for many smaller investors at least ā Freetradeās Isa is not even close to being competitive on pricing.
Itās worth remembering that thereās lots of differences between our services so looking at this fee in isolation doesnāt give a like for like comparison.
If I only have Ā£100 to invest in a year Iām not gonna bother to open an ISA regardless of the provider. With that sort of amounts I think itās a no brainer: GIA account with a provider that offers the possibility to invest with zero trading fees, zero custody fees.
I like Vanguard for their historical role. 0.15% is a very competitive price offer for low amount investing in an ISA. But ISA itās not always necessary
Everyone is free to choose GIA or ISA.
For me the pricing is spot on.
Ā£3 a month. You know where you stand and if itās right for you.
Portfolios will not stand still, they should grow in value over time and with a flat fee this will see the percentage cost reduce.
While I accept that itās a relatively crude, back-of-a-fag-packet comparison, I think the point stands: those with the least to invest are going to be hit hardest by the Isa pricing model.
If you donāt want instant trades on ETFs, as far as Iām aware, the only other fees that Vanguard would levy ā such as transaction costs ā would be rolled up in the annual cost of the fund, which you would also pay through Freetrade. Do correct me if Iām wrong though!
As I say, the GIA route is a great alternative. However, I would question whether investors just starting out will be fully clued up on capital gains tax, dividends allowances and so on.
I think evidenced by posts in this very thread and elsewhere on the forum, people do not know whatās right for them. Especially those that are brand new to the investment game, and those who havenāt exhaustively investigated the other options.
The refrain from Freetrade staff is ājust get an ISAā, even if it is costing those customers 20,000% more than other platforms.
It would be better if there wasnāt such a difficult choice between platforms, and between Freetrade GIA or ISA.
Itās possible for the Freetrade ISA to be a true āno-brainerā choice for the majority of people, especially and including those new to investing with only a little bit of money to put away. Right now it is not.
You can hold as many accounts as you like with us ā holdings under your name in different accounts are treated as a whole. So youāll only ever pay one annual account fee.
Account fee 0.15%
Our annual account fee is 0.15% on amounts of up to Ā£250,000 and free thereafter, so on larger investments your annual account fee is capped at Ā£375.
No hidden charges
We donāt charge you to transfer out, close your account, switch funds, withdraw money from your account or deal.
[ā¦]
Fund charges
Your fund charge (or OCF), is a charge to the fund. OCFs range from 0.06% to 0.80% p.a. As well as the OCF, funds have transaction and incidental costs. Youāll see the total cost of the fund in the costs and charges document when you choose to invest.Ā»
Letās see if Iāve got this straight:
Vanguard GIA: 0.15% pa
Vanguard GIA + ISA: 0.15% pa
CAPPED at Ā£375 pa. Itās a good deal I would say.
Freetrade GIA: ZERO
Freetrade ISA: Ā£30 - Ā£36 pa
Freetrade Alpha: Ā£100 - Ā£120 pa
For me itās an easy choice:
Step 1: Freetrade GIA
Step 2: Freetrade ISA
Step 3: Freetrade Alpha
Personally, I donāt mind spending my money with entities I believe in and wish to succeed instead of faceless corporate entities, but thatās just my own personal opinion
I in no way mean to attack FreeTrade or their team, I am very pleased with their service and community focus.
Itās just a case that Iām still very early in my investing career and as such, fees pretty much anywhere will hurt me. This is basically inescapable on any stocks & shares platform, with the FreeTrade GIA being one of the only exceptions I can think of.
As a budding, prudent investor, I feel that I should set my personal precedent on what my strategy will be (though it is sure to mature over time).
For example, I will would be better off starting with a GIA, waiting for my yearly dividends to reach Ā£360 to which I could open and fund my ISA. Equating to a 10% fee effectively.
I would still have Ā£640 dividend growth room in my GIA before I was taxed, so I could just let it sit and then grow my ISA in ernest.
As it stands, if I was concerned about keeping everything neatly in an ISA from the beginning, I would still be better served opening a Cash ISA and transferring it to FreeTrade later (if such a feature becomes available).
TL:DR - At my current portfolio value, a FT ISA doesnāt fit my need yet, but will in future. Iām almost certain I will open an ISA with FT eventually.
Also, if FT derive most their income from ISA fees, fair enough, I would open one if it would keep the lights on. But, if it doesnāt hurt them too much, I will wait until the value meets my personal requirements. Whether that be ISA prices scaling to portfolio or my portfolio value increasing.
Other than this, I have only good sentiments regarding FreeTrade.
I think some people are certainly āfansā of Freetrade and want to support them. Thatās fair enough.
But Freetrade canāt cater exclusively to enthusiastic fans.
The population at large are going to just consider the numbers when deciding what platform to use. If someone asks what platform to go with on Reddit, I and others are only going to give them the facts. Or a review website or article will present the same facts. Theyāll make their decision based on those. This isnāt personal. Emotion shouldnāt come in to these decisions.
As it stands, multiple significant categories of possible customers should use other platforms, or should use the Freetrade GIA.
Iām with you in thinking the simplicity of the current pricing model is a strength. But since the start of this thread, Iāve changed my mind on what the best strategy might be.
If the ISA was priced at 0.15% capped at Ā£3/month, then Freetrade would be the correct platform choice for most people (wanting to invest in what Freetrade offer), and it could very easily be justified over the GIA as well.
When Freetrade is ready to really scale up, it may be better for them to have lots of customers paying 0.15% of something, than a few customers paying Ā£0 plus a few customers paying Ā£3. Obviously theyāll have to run their own numbers to see what is actually viable. But if the free GIA is viable, itās hard to imagine a 0.15% ISA wouldnāt be.
My idea is making the Monthly ISA fee = (portfolio size * 0.001 ) / 12 ā¦but capping the max monthly fee at Ā£3.
I would prefer something much simpler and more attention grabbing, for example:
FREE ISAs for savings up to Ā£10000
Ā£3 a month after that
As Emma says the benefits of an ISA donāt matter till suddenly it really does (for example need to sell some to buy a house or cover redundancy) x you canāt always predict contingencies or tax rule changes. In that sort of situation youād be very happy to have the gains tax free without waiting. Everyoneās situation is different but I think for most an ISA is a lot easier as you can buy and sell large investments without worry, receive dividends without worry etc.
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