When you think of IBKR, you don’t really think about ISA, but you should because Interactive Brokers’ has one of the best DIY Stocks and Shares ISA around. But why haven’t you hear of it?
Well Interactive Brokers is, I would say, at heart, a trading platform for active traders. This is its pedigree and it is one of the best, if not the best trading platform. There is a plethora of apps and platforms that cater to hedge funds, wealth managers and high-frequency active traders scalping the market or trading the divergence between two stocks.
Now obviously, if you are investing in an ISA, your goal is probably to try and invest for the long term and achieve capital growth (stocks and funds going up) without taking on too much risk rather than day trading.
So, on the surface, IBKR’s ISA doesn’t look like the right fit. But you’d be wrong. Because one thing that active traders and hedge funds need is efficiency, and efficiency comes from low costs. And, as well as colossal market access, one thing Interactive Brokers does really well is pricing.
IBKR are one of the cheapest accounts for traders.
This, by logic, filters down into their investment accounts.
The key difference being that investment platforms like Hargreaves Lansdown, AJ Bell and Interactive Investor charge annual fees for having an account with them. IBKR does not.
When I interviewed the IBKR UK MD Gerry Perez, I asked them how they could be so cheap. He simply said they like scale, they automate and that innovation and tech are key to their success – plus, being big means that you can achieve economies of scale (the more you do something the cheaper it becomes). And ultimately, the cheaper they can be the more customers they can win, and the lower their costs can be. It’s a numbers game.
To give you an example of how cheap IBKR’s ISA is, here is a breakdown of the costs compared to other stocks and shares ISAs:
Account fees
IBKR’s ISA account fees are £0. Now for context, Hargreaves Lansdown charges 0.45%, so if you have £100,000 invested in funds in your ISA, you will save £450 a year with IBKR compared to having an ISA with HL. Or over a five-year period (what people assume a good timescale for ISA investing is) you’ll save £2,250
Commissions
This is the fee charged everytime you buy and sell something.
If you want to buy and sell individual stocks instead of buying diversified funds in the hope of beating the market yourself, AJ Bell charges £5 per deal, whereas Interactive Brokers charges £3.
As a side note, there are some providers like Freetrade and Lightyear that are cheaper, but they are fairly new providers and not as established (which brings it’s own level of risk).
So, if you were to buy or sell shares five times a month for five years, it would cost you £900 with IBKR, but £1,500 with AJ Bell.
FX fees
This has a huge impact on investments because it is the hidden cost of buying US shares.
Now, as people mainly invest in the US because UK stocks are boring and nobody is interested in investing in Lloyds, but everyone wants to buy Apple shares, it’s very important to understand how much this will cost you.
IBKR only charges 0.03% for currency conversions and you can choose when to do the deal, giving you great control over the exchange rate.
Compare this to Interactive Investors’ 1.5% for deals less than £25,000 and you can see where this is going can’t you?
Buying £10,000 worth of Tesla will cost you £150 in FX fees with ii, but only £3 with IBKR.
If you build up £100,000 worth of US stocks in your ISA over 5 years you’ve have paid £1,470 more in FX fees with II versus IBKR.
Interest on account
Somethimes you may think the stock market is going to go down and if you don’t want to start hedging the market by shorting stocks, one of the best ways to protect you profits against a market crash is holding cash on account instead of stocks or funds.
As interest rates are quite high at the moment, brokerage platforms (after being ticked off by the FCA for not doing this before) now offer interest on uninvested cash.
At the moment, if you have over 10,000 USD worth of cash on your account you can get up to 4.33% on that, which is pretty much in line with some of the best-paying savings accounts out there at the moment.
Market access
One final point, you can invest a huge range of bonds, stocks, ETFs and funds. To the point where if you can’t find it on IBKR you probably won’t be able to find it else where.
Those much cheaper apps like Freetrade and Lightyear offer access to the main market stocks, but if you want to invest in something more exotic you can’t.
The catch?
So that’s the good, but what about the bad? Well, I’m afraid there is a downside to all these savings, access, and automation.
It’s that the customer service from IBKR is woeful. It’s not as bad as some of the borrow stories you hear about Revolut, but when you call them up you get through to what feels like a call centre in India.
This is fine; they can help you, but it’s a bit annoying that you can’t get through to someone in London, unless you are a premium client.
Logging in can be a pain too, as it is very secure (I suppose that’s for your own good). Especially if you’ve upgraded your phone and been logged out of the apps.
I’ haven’t been able to login for a while after I got a new phone and nearly smashed it up trying to connect the apps together for 2FA – but that may be my fault because I have quite a few different accounts from testing various platforms and processes on IBKR.
So there you go. IBKR’s ISA is excellent when it works, but if anything ever goes wrong, it’s a bit of a pain…
Richard is the founder of the Good Money Guide (formerly Good Broker Guide), one of the original investment comparison sites established in 2015. With a career spanning two decades as a broker, he brings extensive expertise and knowledge to the financial landscape.
Having worked as a broker at Investors Intelligence and a multi-asset derivatives broker at MF Global (Man Financial), Richard has acquired substantial experience in the industry. His career began as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson), following internships on the NYMEX oil trading floor in New York and London IPE in 2001 and 2000.
Richard’s contributions and expertise have been recognized by respected publications such as BusinessInsider, Yahoo Finance, BusinessNews.org.uk, Master Investor, Wealth Briefing, iNews, and The FT, among many others.
Under Richard’s leadership, the Good Money Guide has evolved into a valuable destination for comprehensive information and expert guidance, specialising in trading, investment, and currency exchange. His commitment to delivering high-quality insights has solidified the Good Money Guide’s standing as a well-respected resource for both customers and industry colleagues.
