This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
If you’re beginning your investing journey, before you can start choosing investments, you need to pick a platform. This is a website where you can buy and sell shares and funds, or select a ready-made investment portfolio.
There are plenty of options, depending on whether you have the time and confidence to make your own investment decisions, or you’d prefer an expert to build and monitor a portfolio for you. However, the plethora of platforms available means it can feel difficult to know how to choose the best one for you.
In this fourth part of our investing series, we’ll help you work out how to choose the right platform, looking at the different options, charges and investment choice – plus lots of handy tips for beginner investors.
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Investing using a platform – rather than through a financial adviser – has become more popular in recent years, and there are now more than 45 investment platforms available to UK investors, according to the financial analyst Boring Money.
Holly Mackay, founder of Boring Money, tells Saga Money: “In the last five years, the number of DIY investment accounts has doubled and there are now over 11 million accounts in the UK spread out amongst an increasing range of options, which can feel pretty bewildering.”
Some platforms allow you to pick and choose investments yourself. You might hear this referred to as the “self-select” or the “DIY” approach. These sites offer access to lots of different types of investment: you could buy a few shares, and some funds and investment trusts. There may also be bonds, gilts (UK government bonds) and exchange traded funds (ETFs).
If you want to buy shares in, say, Tesla (an American company), or Airbus (which is listed on the French stock market), you should look for a platform that offers international share trading. The most comprehensive platforms will have thousands of investments.
Or you can choose a platform that offers ready-made solutions. For example, some offer different options depending on the level of risk that you feel comfortable with. There are also slightly more tailored options known as “robo-advisers”. These will ask a series of questions to assess your goals investment horizon and attitude to risk, and then recommend a portfolio for you.
Ready-made portfolios can sometimes be more expensive than the DIY route, but will save you time, and can be useful for beginners who either prefer a hands-off approach or don’t want to make investment decisions themselves.
“I think the most important question to ask is how confident you feel,” notes Mackay. “If you don’t feel confident in your ability to pick and choose investments, this does not mean you can’t invest online – you can still get a ready-made option. If, however, you want to pick and choose, then look for an option with a broad range of investments.”
Once you’ve worked out what sort of platform might suit you best, you’ll need to look under the bonnet to find out the charges. There are various fee models, so it can be tricky comparing platforms.
Steve Nelson, insight director at The Lang Cat, a consultancy, says there are a few principles that can help you to choose – starting with what you’ll pay. Some platforms have a fixed fee. This is where you’ll pay a fixed amount in pounds and pence, as opposed to a charge that is a percentage of your investments.
Fixed fees tend to start at £5 to £10 on a monthly basis. The appeal of this approach is that your costs don’t go up as your investments grow, but whether it makes sense for you depends on how much you have invested.
“That’s likely to be more expensive if you have more modest amounts to save or if you’re just starting out,” Nelson comments. In contrast, if you have tens of thousands of pounds to invest, a fixed fee can look very reasonable as a percentage of your portfolio.
The vast majority of platforms charge on a percentage basis, which can be around the 0.15% to 0.45% mark. This could be the cheapest option if you’re starting from scratch or only investing a smaller sum. Nelson points out that if you have a large investment portfolio, or you’re looking to “transfer a chunky pension pot”, a percentage fee can work out very expensive.
He advises: “It can pay to shop around. It’s not uncommon to see scenarios where consumers can save hundreds of pounds by placing their investments on a different platform.” You should also check whether there are fees to buy and sell funds and shares. If you’re planning to trade your investments frequently, these charges can quickly eat into your returns.
A tool like compareandinvest.co.uk’s fee calculator can help you navigate the charges and find the cheapest one for you. Bear in mind these are just platform costs. You’ll also need to pay any fund charges on top, plus stamp duty if you’re buying shares.
There are plenty of other things to weigh up in the world of platforms. Investment choice is important. If you want to invest in big US tech firms, or a particular investment trust, you’ll need to check they’re on the platform.
Some platforms will offer help for beginner investors. For example, you may like the idea of choosing your own investments, but just need a bit of guidance. In that case you might prefer a platform which highlights a list of “recommended funds”, maybe about 60 or 70 of them, that its experts have picked for their performance potential. Instead of sifting through thousands of funds, the lists can be a useful starting point for building a diversified portfolio.
Some platforms may have articles about investment themes – such as investing in gold or stock market volatility – as well as fund research notes. Depending on the sort of investor you are, and how much you want to learn, these guides can be helpful.
Here are some other things to look for when picking a platform:
Once you’ve selected your platform, you’ll also need to think about the type of account you’ll open. Platforms offer different types of accounts. These include general investment accounts (GIAs) or trading accounts, stocks and shares ISAs, lifetime ISAs, junior ISAs and self-invested personal pensions (SIPPs).
A stocks and shares ISA is often a good place to start. Any returns are tax-free, you can contribute up to £20,000 each tax year (that's the total across all ISAs you have), and you can withdraw money at any age.
With a SIPP, you’ll get tax relief on contributions, but you won’t be able to access the money until age 55 (rising to 57 in 2028). According to Modray, if you want to keep things simple and flexible, a stocks and shares ISA may be the best option for a beginner investor looking to boost their savings.
If you’ve already used up your ISA allowance, you can open a General Investment Account (or trading account), but your returns could be subject to both dividend tax and capital gains tax.
With our Stocks & Shares ISA and General Investment Accounts. Capital at risk.
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