Interactive Brokers’ Stocks & Shares (IBKR ISA)

Interactive Brokers' ISA: One of the best you've never heard of

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: Sometimes 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.

How does the Interactive Brokers’ Stocks and Shares ISA compare to the competition?

Interactive Brokers’ new ISA will need to compete with a host of similar products offered by established providers so who looks the best bet?

Following Interactive Brokers’ recent rationalisation of their UK and European commission rates it’s hard to imagine that they can be beaten on trading costs, but what about other fees and charges?

Well, Interactive Brokers will charge an activity fee of £3.00 per month, per Stocks and Shares ISA. However, if you generate £3.00 of commission in that month no fee is payable and if you generate a commission of less than £3.00 in a month then the difference between that sum and £3.00 is payable.

For comparison, Interactive Investors charges a £9.99 per month ISA account fee and Hargreaves Lansdown charges 0.45% of the value of the ISA, up to a maximum of £45.00 per annum. Whereas at a wealth manager Moneyfarm you can expect to pay an ISA fee of 0.75% of the value of the ISA every month.

Interactive Brokers will allow one free withdrawal per ISA, per month and will charge a £7.00 withdrawal fee thereafter. Whereas none of the other providers in the Good Money Guides Stock and Shares ISA comparison tables charges exit fees for cash withdrawals.