DIY Investing: Is Freetrade the best tool for the job?
For investors who, like me, have only ever invested during the internet age, it’s hard to imagine week-long dealing periods and paper share certificates. My first investment account (an ISA set up with IG) cost me £24 a quarter with no added fees to buy funds. By the time I felt confident enough to start buying shares the price for share trading had come down to just £8 (it has since fallen further and the quarterly fee has disappeared).
Still newer investors - those who were swept up in the market hype of the last couple of years - find the history of share dealing even more unfathomable. I have a friend who has just closed his Freetrade account and withdrawn the funds because the platform raised its prices from £3 a month to £5 a month for the basic account (a free account is still available but you can't open an ISA with this). According to him £60 a year just isn’t worth it.
It’s a far cry from the experiences of private investors who became enthralled by the markets last time a share dealing revolution was afoot. In the 1980s when big British businesses were being privatised causing a rapid uptick in demand for individual investor share dealing, execution-only brokerages began popping up all over London. The arrival of competitors from the US helped bring down prices, while the internet put paid to cheques, share certificates and telephone-only dealing.
A similar surge in demand in the last few years has seen another new generation of private investor-friendly brokerages spring up. This time they come in the form of apps.
Freetrade has taken the market by storm, racking up a user base of over 1m investors. It faced early competition from US-born Robinhood, whose difficulties during the Gamestop saga halted adoption in the UK. More recently we’ve seen the launch of Dodl, an app-based share dealing platform from AJ Bell. eToro has become the cheerleader for ‘social investing’ and claims to allow you to copy other investors' successful portfolios at no charge.
And as the new kids on the block have started to gather followers, the incumbents have felt the need to change their ways. interactive investor took the first strides towards a more holistic offering by buying up many of its competitors, including one of London’s original online brokerages, The Share Centre. More recently, Hargreaves Lansdown - the UK’s biggest online stockbroker - announced a £175m investment programme in tech which will allow it to offer more competitive prices. Meanwhile,
The question for existing private investors is whether we should be woo-ed by the hot new apps, or whether we should stick with our current platforms in the hope that their fees will climb down eventually.
Price comparison: Avoiding the costs
Headline brokerage fees don’t mean an awful lot for regular stockpickers. It’s the dealing costs, foreign exchange fees, dividend reinvestment fees and the spread on offer which really make the difference.
We have compared the 10-year return net of fees for some of the leading platform-based brokerages available in the UK:
- Hargreaves Lansdown has no annual fee and the discounts offered on many funds makes it a good option for investors looking to simply buy into collectives. But share dealing costs £8.95 a trade and the dividend reinvestment rate is 1%.
- interactive investor aimed to help stock pickers save money by offering a fixed subscription for regular traders. The ii Super Investor account costs £19.99 a month and trades on top of that cost £3.99 - every month subscribers get two free trades. The dividend reinvestment rate is also fixed making this a pretty good option for those with large portfolios.
- IG is popular among traders who buy on leverage. Its simple share dealing account is free and trades on UK shares cost just £3. There is a percentage fee charged on shares listed in Europe or Australasia, but US stocks are free to trade.
- Freetrade’s most comprehensive account (Plus) costs £9.99 a month and all trades are free. There is no dividend reinvestment rate either because income is deposited into users’ accounts as cash which can then be reinvested at no cost.
- Dodl, which is the relatively new app from AJ Bell charges a percentage fee of 0.15% per month with a minimum payment of £1 (which perhaps offers an insight into the type of customer the platform is targeting). Once again there is no dividend reinvestment fee.
Let’s take a look at how those fees compare with a like-for-like comparison assuming an investor has an initial investment of £10,000, an annual deposit of £2,000, 4% average share price growth and 1.5% income return. The target holding for the portfolio is 40 UK stocks and 10 trades per month are made on average.
The chart shows that Dodl wins by quite some margin, costing £350 over ten years and leaving investors with a total pot of over £40,000. By comparison, Hargreaves costs over £10,000 over ten years and an investors’ closing pot in this hypothetical scenario would be £27,000. Freetrade, ii and IG cost £1,198, £2,867 and £3,600 over ten years respectively and their final portfolio performance reflects that.
Check the service
But before you all dash off to use Dodl or Freetrade, it’s worth being aware that the service on offer isn’t what you may have come to expect from your existing broker. Dodl might be part of AJ Bell but it only offers 50 British stocks and nothing smaller than a FTSE 350 company.
Freetrade has added many more markets and indices in the last few years and the UK small cap space is now available alongside some of the larger markets in Europe and a decent selection of stocks in the US. With the plus account you can also set limit orders and stop losses, which makes it far more enticing for a regular trader. But there are still gaps in the service. For example, Freetrade only allows you to buy stocks long and there is no trading on leverage available (although that might not be a bad thing). What’s more, while the app is very user-friendly, the data available on stocks is not especially comprehensive and the charting tools don’t allow for technical analysis like they do at IG.
And for international stock picking you would actually do better sticking with IG, which now has no ongoing fee and transactions in the US are free. The FX charge at IG is 0.5% on top of the spot rate, which is slightly higher than it is at Freetrade (0.45%), but it still works out cheaper in the long run.
Business model - beware wobbles
Investors thinking of moving their whole portfolio into Freetrade should also be slightly cautious of the business model. Perhaps unsurprisingly for a company which is so generous with its fees, Freetrade is heavily loss making. In the 2021 financial year to September, the company reported £18.2m of losses before tax off just £12.7m of revenue.
A lot of money is being eaten up by the company’s continual investment in its cloud-hosted app, which management claim is helping to reduce completion times for share dealing. Time to complete basic orders is now less than half an hour of average, which compares favourably with even the biggest brokerages. The cloud model also allows the company to keep expanding the platform as more customers join without a fundamental change of tech stack - something that will help it keep costs down in the long run. But for now, keeping costs down is far from important. Freetrade hired 121 new staff in the 2021 financial year and now has well over 200 people working at the company. There are currently 12 vacancies - mainly in engineering - on the company’s job board.
With deep-pocketed investors including Molten Ventures (formerly Draper Esprit) - which led the £12m Series A fundraising round in 2019 - and New York private equity firm Left Lane Capital - which led the $48bn Series B fundraising round last year - the losses aren’t currently too much of a concern. Meanwhile, Freetrade’s growth is incredibly impressive. Assets under management exceeded £1bn for the first time in late 2021, compared to £249m at the end of the 2020 financial year. Trading volumes were £3.3bn in FY2021, compared to £0.8bn the previous year.
But Freetrade is not making much money from the assets, which is hardly surprising considering the company is only earning a maximum of £9.99 per month, plus a little interest on the cash in accounts and some FX fees from its users. The average account size of a Freetrade user is just over £1000 and the company is making roughly £14 per user. Surely that is not a sustainable business model.
Compare that to IG which is hugely profitable thanks to the amount of money it makes on leverage investing. For investors looking for a financially resilient place to store their savings, it’s not hard to pick the better platform. Just don’t be tempted by the spread betting accounts at IG unless you’re an experienced investor. There is a reason the company is so profitable and it isn’t because its customers are super successful.
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58 comments
No mention of iDealing. £5 per quarter for an ISA
Check out De Giro, flat fee of £2.50 on uk deals
Assets and cash may be protected from Freetrades liability but in a recent case (SVS or Beaufort I think) they were used by the administrator to pay the costs of sorting it all out on behalf of the asset owners, and they charged handsomely for it.
It also took ages so people had no control over their holdings, committed to holding for a couple of years in effect.
So yes, in theory you're protected but in practice I don't want to find myself there.
https://citywire.com/wealth-ma...
https://www.fosterdenovo.com/m...
why not use IBKR (Interactive Brokers)? Great platform, strong financials/security of funds(my opinion, no guarantees!), and great access to equities, ETFs, and international markets also. Great rates with extremely low spreads in the Pro version too!(and they don't sell trade flow for Pro users)
Don't they charge a percentage of your assets?
Yeah, agree, they are the best and cheapest.
I understand the points from this article that there are good reasons not to consider the cheapest Dodl (not many stocks) and the next cheapest Freetrade (it might too bust as it doesn’t make much money - bit dubious) but then why does it skip the next cheapest interactive investor and skip to recommend IG? Odd. It’s also odd how it only compares them on starting with 10k and investing 2k a year. This is very specific. The comparisons will be different for different scenarios. Reads a little like a advertorial for IG to me.
I don't see how ii is cheaper than IG, unless you do less than 3 trades per month.
Just me using Barclays Smart Investor? I’m charged £4 a month, £6 a trade.
Don't be beguiled by IG, they cannot be relied upon
Agree'd somehow this week I double buyed Begbies by flicking between Market and Fixed Quotes prices. Seeing as the buy's were about a minute apart I did not complain, but it does make you go hmmmmmm.
I'm with HL. I do like it but the one thing that it does not provide is a greater range of order types. I would love to be able to set a buy limit order for when the price increases to a target price and I would like to have a shorting option... maybe even trailing stop loss! I know they wont do these but it would make the higher prices of trades more palatable to me! ... what brokers can offer all these order types in a S+S ISA?
Lee, unless I've misunderstood your post with HL you can set a buy limit order and set stop losses within an ISA or share trading account. I've never used shorting but I think HL have a different type of account for that.
The buy order is only if price is lower not at a higher price. HL don't do shorting as far as I know, apart from some index etf shorts.
Yes stop. Losses but don't always work.
Do you know any that do this? I used to trade on the ASX using CommSec and part of my strategy was to set a buy order once a stock hit a certain price on the way up based on previous support and resistance lines, the strategy worked well but interested if there's any UK tools that do the same?
No. On HL you can buy when price goes down or sell when price goes up or down (stop).
From 1 September ll are reducing their standard dealing charge for £7.99 to £5.99 per trade. This change not widely advertised as far as I can see.
Just to add to personal experiences, I have used Interactive Investor and AJ Bell Youinvest. Over the years accounts have moved around - for example back in antiquity I was with Comdirect that then became Sharetrade (?) that then became Selftrade and then Equiniti before being taken over by Interactive Investor. To me, as important as fees are quality of back up admin and how helpful the company is.
On the surface the companies are fairly similar but personally, to any request or suggestion that I make of Interactive Investor there is always a 'can't do' or a pushback compared to AJBell Youinvest where there is always a positive response. I even ended up talking to Andy Bell once when making a suggestion as he was interested in the 'user experience' and implemented my ideas. I find the difference like day and night.
Further to this, just to be clear, I do not invest in unit trusts, only shares and investment trusts. I find comparison websites often irrelevant to me as they put the annual costs as owning a portfolio of unit trusts. Therefore for me AJ Bell Youinvest are the best. I am an investor not a trader.
Hargreaves charge £11.95 per trade for the first 10 trades in a month. I beleive you then have to wait until the next calander month to get the reduced fee of £8.95. There is a cheaper rate of £5.95 if you do 20+ trades in a month, but you have to keep the number of transactions at this level to retain those discounts - a total rip off IMHO.
I've not looked at many brokers, but I'm way more happy to go for IG at £3 per trade. (3 trades per month, first month is £10 per trade so 3 trades on the last day of the month qualifies you for the reduction).
I'm slowly cycling out of Hargreaves - sells and divi's are moved into IG..... It is way less onerous to do 3 trades per month at half the price of Hargreaves 20 trades per month price !!
Hargreaves also charge 1% FX fees as aposed to IG's 0.5% - so the round trip is a 1% saving.
I'm not saying IG is the best, just they are way way cheaper than Hargreaves.....
I'm with HGL, it would be nice if you gave the pro's and con's of both. Thanks
Pro's are Hargreaves have (or used to have) the best customer services by far, I've not had cause to speak to them them for a while so now probably neutral on this.
Cons - They said they would not allow me to transfer a Defined Contributions pension fund into my SIPP without Financial Advice - bunch of useless jobs worths IMHO, just let me do what i want without the fkin £2k charge :-(
They seemed to have dropped off in competivness recently since both Mr Hargreaves and Mr Lansdown chucked in the towel, They now seem to be relying on their reputation with the service they used to provide, so they are not competative any more - see IG comparison above.
The obvious drive to cut costs does not fill me with confidence. On the rare occasion I've PM'd then I seem to get an irrlevent automated response that does not answer my questions. Useless really.
Then again on the plus side - I stll trust them the bulk of my SIPP and ISA's......
If like me you want the flexibility to drip feed money into the market a big plus point for II is that their monthly investment service is free, zero dealing charges, and available for most investment trusts and FTSE350 shares
Dodl, which is the relatively new app from AJ Bell charges a percentage fee of 0.15% per month with a minimum payment of £1
It's 0.15% per year with a minimum of £1 per month
I don't think that comparison is very realistic, £10,000, 10 trades per month, 40 stocks. That's only about £250 per stock. Not very typical.
So what is the average trade amount?
How do they compared if you had £100,000?
Average trade £2500. Average 5 trades per month.
Absolutely agree. I read recently that the average PI trades once a month. I dont believe that most investors, even with portfolios in the 100's of 000's, trade 10 times a month. so the comparison for most people would be very different and execution, and pricing are far more important.
Some may do on Freetrade but not on HL. I trade far more on IG than HL because its much cheaper. Also on US shares the cost is only 0.5% forex fee. So it does not matter if I buy 1 share or 100, the cost proportion is the same, but on HL you have £11.95 plus 1%.
IG still have not paid me for the take over of MobileEye by Intel in 2018.
Will not reply to questions and completely ignore the situation.
Need I say more?
Anyone else still waiting?
I threatened to report them to the FCA and close my account, only then did do anything. My issue was just transferring an ETF which was liquidated into another ETF. There were options but IG never informed me about them.
When talking about IG are we speaking about their share trading, rather than their spread betting accounts? This is from experience a year ago say, however whilst IG may have cheaper share trading fees than HL for example, their spread is wider. I did a spreadsheet comparing actual overall costs (including spread which seems to be missing from this discussion) and they (HL, IG, eToro) were about the same until you spend more, when HL was cheaper overall, again because of spread. Also, IG share account also only used to allow daily stops. Ie, every day you’d have to set a new one.
Yes Im talking about the share dealing and ISA accounts, I dont have the spread betting account yet. I dont use stops.
The spread is the same as IG I have found. Are you talking about actual live prices?
But I don't do large trades. The good thing about IG is you do smaller trades because the costs are lower.
No mention about Halifax Sharebuilder which I have used for years.
IG group (LON:IGG) are free on US stocks but charge 0.5% forex fee. HL charge 1%.
HL does charge a fee 0.45% per annum on ISA, capped at £45 on shares, funds are not capped, although fees do fall if over £250,000.
IGG are alright until something goes wrong then they are completely unless. The site works well but the support staff are useless. Took me months to sort out a very simple matter.
HL service is considerably better than IG but their fees are not very competitive, especially on US stocks. IGG don't offer funds or SIPPs either.
I have compared prices on HL and IGG, they were nearly always the same, IG sometimes slightly better. IG can also part fill orders at lower prices, HL is all or nothing. Auto bids dont always work on HL.
I cannot find fault with ii which inherited my accounts after it took over the Share Centre. A greater plus, what with growing assets, is the takeover of ii by Abrdn meaning solvency is less of an issue in uncertain times.
Megan, HL charge 11.95. 8.95 is only if you have executed 10 trades in the previous month, which rarely happens with most people.
I have a friend who has just closed his Freetrade account and withdrawn the funds because the platform raised its prices from £3 a month to £5 a month for the most basic account. According to him £60 a year just isn’t worth it.
I think this information is incorrect since looking at Freetrade website, their basic account is still free. Link to price plan comparison.
I found comparing fees to be problematic; until I found:
https://www.boringmoney.co.uk/...
I now run an annual check to see if it is worth swapping platforms. That said I agree cost isn’t everything, so buyer beware and check before signing up.
Freetrade also offer 3% interest on up to £4k cash which negates the monthly fee. I am testing it at the moment and execution has been very good, and always instant (Very easy to test out with £0 trades!) Usually at or better the price quotes I requested from HL and iWeb at the same time. Not sure what the half hour bit is about - I presume this is clearing the underlying trade? I've never seen an instant order take longer than a second. NB Freetrade do not provide a quote before dealing so I usually use limit orders. They support ISAs and SIPPs as well as general trading accounts.
Other negatives:
All in all it seems a solid platform for smaller portfolios, people who want to DCA into positions, particularly mid/large cap names, ETFs and UK ITs. If you can keep £4k in cash (even if reserved for limit orders) you effectively get the Plus benefits for free. Solvency risk is real - I don't think I'd be comfortable with a large portfolio there!
Another new entrant is Lightyear which have a quite compelling offer for international investing - £3,000 per month without fees or FX charges (0.35% thereafter). They don't offer ISAs or SIPPS yet though.
This is my first year investing, having not long turned 50 and having some spare cash for the first time, and have put my ISA allowance into HL in around a dozen stocks. I went for HL as it was the best known, but reading this I'm doubting my decision! Saying that, I do like the platform.
On another note, as a complete novice, I enjoy reading everyone's thoughts and comments. They really are a great source of learning.
“Solvency risk”
Freetrade holds all client monies separate to their own funds under the FCA CASS rules. Customers are also protected by FSCS rules. So unless you have over £85k invested with them, (I don’t) this is not really an issue.
Hi Raven
My understanding was that only £85k of cash was covered.
Investments directly in companies is not covered.
In recent times I believe a broker went bust and the administrator started selling client assets to pay for their fees! I can't remember the details I'm afraid.
A
According to their website, Freetrade segregates both client funds and assets so that they can't be used to pay off any creditors. If Freetrade were to fail, the company’s creditors will not be permitted to use any client investments to cover Freetrade’s liabilities.
https://freetrade.io/legal/kee...
From the above:
When you invest with Freetrade, any UK-listed stocks or ETFs that you buy are held by Freetrade Nominees Limited, which holds stocks and ETFs, with you as the beneficial owner. The stocks and ETFs are held in CREST, which is the UK’s central security depository.
Freetrade Nominees Limited is a non-trading company. That means it can’t run up liabilities of its own and can be shielded from any liabilities that Freetrade Limited accrues.
All of this is done so that, in the unlikely event of Freetrade failing, the company’s creditors will not be permitted to use your investments to cover Freetrade’s liabilities.
When you invest in US-listed stocks, we hold them in custody at a third-party SEC-registered broker (the Security and Exchange Commission, which regulates US securities markets). Our customers’ stocks are held in a designated customer account at the broker, and cannot be mixed with Freetrade’s own assets or used to settle our debts. Similar to the UK securities being held in CREST, your US stocks are ultimately held in DTCC (Depository Trust & Clearing Corporation). Currently, some customers’ US stocks are still held by Freetrade Nominees Limited in CREST, but we are in the process of fully migrating US stocks to our third-party broker.
Apologies for the bold type, which I can't alter, as I've copied and pasted the above section directly from their website article, but think its pretty clear both funds and stocks are protected.
Thanks for this LittonOwl. That's very interesting.
I've just seen Doug2500's response above - it was the Beaufort case I was thinking of.
I'm not sure if rules have been changed since then, but one of the reasons I like HL is because I can regularly see that they seem to be quite financially secure.
IG don't currently offer DRIP which is a PITA too
I find that Freetrade orders are normally completed within a few seconds as long as the market is open. I've been generally very happy with the service but mindful of the finances.
Would love to hear opinions from people far wiser than myself on the use of Trading212 (a Freetrade rival, not mentioned in this article). Cheers!
I’m very happy with the full AJ Bell platform “YouInvest”. £4.95 per trade. Whole market available. But most importantly trades are inside my ISA and SIPP. So tax free gains.
Not sure what benefits Dodl offers?
I have my ISA with YouInvest but almost all the time i pay £9.95 per trade, you only get the £4.95 price if you have done 10+ trades in the previous mth. So i have been looking at moving to another planform for this years ISA, as its quite expensive.
"Time to complete basic orders is now less than half an hour of average"
In small caps that half an hour can be the difference between your stock being 2% down to 25% or worse down. I'll stick with my broker where I can execute in less than 30 seconds :)
IG execution seems faster in my experience. I had recently opened a limit order in both Freetrade and IG and it executed with IG in minutes while the Freetrade stayed open until cancellation.
The most relevant thing to me (or one of them at least) would be spreads, execution prices and ability to execute at times of stress, but it's by far the most difficult to measure. This is worth far more to me than saving £5 on a trade.
I agree. As a portfolio becomes larger (hopefully) over time the transaction fee becomes less relevant. If your trade is, say, £9k then HL may charge £8.95 but this is only 0.1% of the transaction so if they can achieve a better spread/execution price by more than this then no problem. Not sure how you can compare this though.
Totally agree. Plus when I want/need to execute an order by phone I know it will get answered within seconds. Just avoid UT's with HL as that is when you get clobbered.
'Execute at times of stress'. 100%. With the cheaper platforms, you may not even be able to log in during market stress.
Thats happened on HL site as well, it is not just the cheaper platforms. IG did have some issues about 2 years ago but nothing recently.
excellent review. I have account with ii mainly for US trading though IG appears to be better on FX charges. I have smart investor account with Barclays which I am stuck with as the 6 weeks time it takes me out of the market for transfer is absolutely unacceptable these days.
customer service at ii is the best among the three in my experience.
An objective unbiased comparison of the various brokers would have been really useful to me last year. I am still considering opening a second account due to the limitations of ii who I am with. There are so many aspects to consider as a novice investor that maybe Stockopedia could have an open discussion / area. As an example - I didn't know that ii dont offer a trailing stop when I signed up with them..
More important than cost Look at service offered and information supplied I have used several and find Hargreaves Lansdown bad to beat
I like HL, the are good for pensions and just buy and hold strategies because there are no maintenance fees, unless you have funds (unit trusts and OEICs). So stocks and Investment Trusts cost nothing per year to own. The trading fees are negligible if you have large holdings.