When you buy funds within a stocks & shares individual savings account (ISA) you could save a small fortune in charges by investing via a discount broker who rebates sales commissions. We’ve compared 26 brokers to see which offer the best deals.

Action Points:

1. Decide whether discount broking is right for you

If you need investment advice then using a discount broker is probably not for you. Only one of the 25 brokers we looked at includes advice within their discount proposition, requiring at least £50,000 of fund investments to qualify. Consider using a good independent financial adviser (IFA).

But if you’re comfortable making your own investment decisions and buy funds that pay commission (trackers typically don't) then you’ll almost certainly reap benefits from using a discount broker.

2. Choose a level of service that suits

While you shouldn’t expect much in the way of service from discount brokers, some do offer guidance and research (and in one case, advice) that you might find helpful. This generally comes at the expense of lower commission rebates - the very cheapest deals simply offer a ‘no-frills’ transaction service.

Whichever you choose you should be able to check your investments online if they're held within a fund supermarket. If more than one supermarket it should be possible to view them all on one screen if the broker offers a consiolidated valuation.

3. Check whether you already hold investments via a fund supermarket

If you already hold investments via a fund supermarket, such as Cofunds or Fundsnetwork, it usually makes sense to buy new investments on the same platform, keeping everything in one place. This could affect your choice of broker as a few tie themselves to one fund supermarket.

4. Select the broker providing the best deal for the service you desire

The commission rebates (and services) offered by discount brokers vary - see our comparison below. If you’re autonomous and not fussy about choice of fund supermarket then opting for the cheapest will probably be your best option, otherwise you might get better value paying a little more for added services and/or choice.

5. Choose the fund(s) you wish to buy

If the discount broker you've chosen provides research you might find this helpful in making your choice. You may also find our guide to investing useful.

Discount Broker Comparison

To help you find an attractive deal we’ve compared over 25 brokers, categorised below by levels of commission rebates (all links to brokers are unpaid).

100% initial & trail commission rebate - no annual fee

Cavendish Online offers the cheapest deal for most people, especially if you stick to using the Cofunds or Fundsnetwork supermarkets. Expect basic service, but great value if you know what you're doing.

Broker	A?	B?	Example: Invesco Perpetual High Income ISA**			Fund super-markets offered	Notes
			Effective initial charge	Effective annual charge	Estimated 10 year saving
Cavendish Online			0%	1%	£1,526	Cofunds, Funds-network	One-off £25 admin fee when using Fundsnetwork. Additional £10 annual fee when using other platforms and fund providers. Commission rebates paid monthly (Cofunds) or quarterly (Fundsnetwork).

100% initial & trail commission rebate - annual fee

Alliance Trust Savings offers a good deal if you also want to hold shares. But when using brokers in this category always check the extent that annnual fees will reduce commission savings.

Broker	A?	B?	Example: Invesco Perpetual High Income ISA**			Fund super-markets offered	Notes
			Effective initial charge	Effective annual charge	Estimated 10 year saving
Alliance Trust Savings			0%	1%	£1,170	n/a	Limited fund choice vs others. £25 & vat annual ISA charge (2 free deals), £12.50 per deal and £50 fee to transfer out.
commfreefunds			0%	1%	£774	Cofunds	£60 annual charge.
Fair Investment			0%	0.75%	£574	Nucleus	0.85% annual charge, although fund management charges lower than most.

100% initial & partial trail commission rebate

Club Finance rivals Cavendish Online at the 'no-frills' end of the market, but could prove slightly more expensive. Hargreaves Lansdown offers a compelling combination of discounts and research, with plenty of information available to help you select funds. However, decide to move your investments from Hargreaves to another broker in future and it could prove a headache and/or expensive.

Broker	Trail Rebate	A?	B?	Example: Invesco Perpetual High Income ISA**			Fund super-markets offered	Notes
				Effective initial charge	Effective annual charge	Estimated 10 year saving
Massow's	80%			0%	1.10%	£1,409	TBC	Very basic website.
Clubfinance	75%			0%	1.125%	£1,370	Cofunds, Funds- network, Skandia	Basic website. Commission rebates paid annually.
rplan	50% (rplan share capped at £15 pm)			0%	1.25%	£1,175	Cofunds	Fund selection tools, 3rd party research and investment community.
Hargreaves Lansdown	varies, generally 30-50%			0%	1.25%	£1,175	Vantage (own)	Extensive fund research available. Commission rebates paid when received by HL. 0.5% & vat annual charge on funds that don't pay trail commission. £23.50 charge per fund to transfer out.
Commshare	30-50%			0%	1.25-1.35%	£1,021	Cofunds, Funds- network, Skandia	Commission rebates paid annually.
Chartwell Direct	30%			0%	1.35%	£1,021	Cofunds	Limited research available. Commission rebates paid monthly.

100% initial & no trail commission rebate

You really need to benefit from added value in this category to compensate for lower rebates versus those above. Bestinvest is notably the only discount broker to offer independent advice at no extra cost, on portfolios of £50,000 and above, paid for by trail commission. An attractive deal if you qualify. Bestinvest also publishes extensive research from its in-house team. Allenbridge, Chelsea FS and Dennehy Weller also deserve a mention for their in-house research. Good research could more than compensate for lower rebates, but there's no guarantee. Ultimately you'll have to decide yourself how much value to place on it.

Broker	A?	B?	Example: Invesco Perpetual High Income ISA**			Fund super-markets offered	Notes
			Effective initial charge	Effective annual charge	Estimated 10 year saving
Allenbridge			0%	1.5%	£792	Cofunds, Funds- network	Quarterly valuations include detailed research on funds held.
Bestinvest			0%	1.5%	£792	Cofunds, Funds- network	Extensive research available. Advice on portfolios of £50,000+ at no extra cost.
Chelsea FS			0%	1.5%	£792	Cofunds	Reasonable amount of research available.
Dennehy Weller			0%	1.5%	£792	Cofunds	Reasonable amount of research available.
Elson Associates			0%	1.5%	£792	Cofunds, Funds- network
Financial Discounts Direct			0%	1.5%	£792	Cofunds
Fundsnet			0%	1.5%	£792	Cofunds	Limited research available. £25 bonus to transfer in.
Moneysupermarket			0%	1.5%	£792	Cofunds
Moneyworld			0%	1.5%	£792	Funds- network
Seymour Sinclair			0%	1.5%	£792	Funds- network
SFS Invest Direct			0%	1.5%	£792	Funds- network	Limited research available.
TD Waterhouse			0%	1.5%	£792	n/a	Self-select ISA, can also hold shares.
Torquil Clark			0%	1.5%	£792	Cofunds, Funds- network	Limited research available.
Willis Owen			0%	1.5%	£792	Cofunds	Limited research available.
Fundsdirect			0%	1.5%	£673	N/A	0.75% fee when buying funds.

Partial initial & trail commission rebate

Can save money versus brokers who give no trail commission rebate, but better deals available elsewhere.

Broker	Initial Rebate	A?	B?	Example: Invesco Perpetual High Income ISA**			Fund super-markets offered	Notes
				Effective initial charge	Effective annual charge	Estimated 10 year saving
Fund Choice	keeps 1%			1%	1.5%	£860	Cofunds	Limited research available.

Partial initial & no trail commission rebate

These options are of little interest to fund investors as they're more expensive than the brokers listed above. However, iii.co.uk can be a cost effective option if you wish to combine shares and funds within the same ISA.

Broker	Initial Rebate	A?	B?	Example: Invesco Perpetual High Income ISA**			Fund super-markets offered	Notes
				Effective initial charge	Effective annual charge	Estimated 10 year saving
iii.co.uk	keeps 1%			1%	1.5%	£634	n/a	Self-select ISA, can also hold shares. £10 per fund to transfer out.

* defined as a valuation able to show current holdings from more than one supermarket. ** assumes trail commission used to offset annual management charge, in practice this may not be possible. Saving compared to buying the fund directly from Invesco Perpetual with 5% initial charge and 1.5% annual charge, assumes a £10,200 lump sum invested for 10 years with annual growth of 6% before charges.

Questions

How do fund ISA discounts work?

When you buy a fund (unit trust/oeic) in your ISA the fund provider normally pays a sales commission to the adviser selling the investment. This is typically 3% at the outset (‘initial’ commission) and 0.5% a year thereafter (‘trail’ commission).

Seek advice from an Independent Financial Adviser (IFA) and they’ll probably keep this commission in exchange for giving you advice, or refund it and charge you an hourly fee instead.

Discount brokers don’t normally provide advice, but they’ll share the commissions received with you, effectively reducing the overall fund charges you pay.

Initial commission rebates usually offset fund initial charges, so you should incur minimal buying costs, if any.

Trail commission rebates are usually paid as cash refunds, either monthly, quarterly or annually. You can either re-invest these or put the money in the bank.

Are all discount brokers the same?

No. Commission rebates vary. And while some provide potentially useful research, others simply offer a ‘no-frills’ bargain basement transaction service.

Should I use a discount broker?

If you’re comfortable making your own investment decisions, then yes. You’ll normally get a cheaper deal compared to investing directly with a fund provider or via a financial adviser.

However, if you need help then don’t underestimate the value of good independent financial advice. Granted, not all advisers are worth their salt, but there are some good ones out there.

What are fund supermarkets?

Whether or not you use an adviser/discount broker, investment funds can be held either directly with a provider or via a platform (such as a fund supermarket) that allows you to mix and match funds from a large number of different providers. Fund supermarkets have the advantage of cutting down on paperwork and making fund switches fast and cost effective (typically a flat 0.25% fee to switch – no initial charges).

What service can I expect?

Not much, you’re generally on your own. However, some discount brokers do publish guidance and research, which you might find helpful. At its most basic this might simply be a few suggested fund choices, although a handful of brokers do publish more extensive research including updates on whether a fund is worth continuing to hold following manager changes etc – possibly better than you might get from some IFAs!

Can I move between discount brokers?

Yes, you simply need to switch the 'agency' from one broker to another, the investments should remain untouched. The exceptions are Hargreaves Lansdown, which operates its own fund supermarket, and stockbrokers that operate self-select ISAs. In these instances investments will either need to sold then repurchased, or transferred 'in-specie' - both may incur costs.

How do discount brokers make their money?

Primarily from any share of the trail commission they retain. Those that rebate trail commission might also benefit from earning interest on your share of the commission if there's a lag between them receiving it from a fund supermarket/provider and paying it onto you - it may not seem like much, but multiply the amounts by thousands of clients and it adds up.

Useful Information & Links

You can read more about advice and commissions on our financial advice page.

You can use www.unbiased.co.uk to find independent financial advisers in your area based on the criteria you specify.