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Interactive Investor moves to Netflix-style charging model

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Investment platform Interactive Investor has overhauled its charging structure and will now offer customers three monthly subscription options.

The UK’s second largest investment platform is planning to replace its quarterly fee with a flat monthly fee from 1 June. Customers will be able to choose from three service plans.

The investment platform previously offered customers one tariff, priced at £22.50 per quarter and £10 to buy and sell investments online.

It says it has slashed online transaction fees and will provide investors with at least one free trade per month, depending on which plan is selected. Across all of the tariffs dividend reinvestment and regular investments are priced at £0.99 per trade.

How the tariffs work

The first new tariff is called ‘Investor’ and will be priced at £9.99 per month. Trading costs for UK and US shares, exchange-traded funds (ETFs), investment trusts and open-ended funds will fall from £10 to £7.99 per trade. Meanwhile, international shares (excluding US) are priced at £19.99 per trade. One free trade per month is included, which is available for 90 days.

The second tariff ‘Funds Fan’ is £13.99 per month and is aimed at more active traders. Here, trading costs for funds and investment trusts fall to £3.99 per trade, while UK shares, US shares and ETFs remain at £7.99 per trade. International share trades (excluding US) are also priced at £19.99. This plan includes two free fund trades per month.

For frequent traders, Interactive Investor is offering the ‘Super Investor’ plan – priced at £19.99 per month. This prices all trades across UK shares, ETFs, investment trusts and open-ended funds at £3.99. Meanwhile, US shares can be traded for £4.99 per trade and other international shares are £9.99 per trade. This tariff includes two free UK share, ETF or fund trades per month.

Richard Wilson, chief executive of Interactive Investor, believes that the new pricing structure provides investors with an opportunity to make “life-changing cost savings” over the long-term.

“We don’t think that one price should fit all, and most other industries – apart from the financial services sector – have long recognised this,” he said.

Not everyone will be better off

The new ‘Investor’ plan will equate to a monthly fee increase of £2.50 in comparison to the old tariff. However, trades will go down by £2.

A customer on this plan who doesn’t trade at all over a 12-month period will pay £30 more per year. However, Interactive Investor points out that if the investor traded once a month, they would be paying exactly the same as before. An investor trading twice a month would save £24 a year in comparison to the old tariff.

Moira O’Neill, head of personal finance at Interactive Investor, pointed out that frequent investors stand to benefit the most from the new pricing structure.

“Whilst these revolutionary flat fees mean you get better value in the long term, not everyone will feel immediately better off. This is because the flat fee has increased, while trading fees have been cut across the board. So, it is investors who most actively engage with and manage their investments who will benefit the most,” she explained.

Expensive for smaller portfolios

Michael Akinwotu, a senior analyst at comparison site Boring Money, commented: “Flat flee platforms, such as Interactive Investor, become very price competitive as portfolio sizes increase, but traditionally can be very expensive for smaller portfolios. In comparison, a percentage-based platform fee may be the most price competitive option for an investor with a smaller portfolio.”

For anyone who is looking at an investment platform, he suggests considering the potential underlying investments, portfolio size, and frequency of trading, as these can cause pricing to differ widely.

£30,000 potential cost-saving

Research by consultancy the lang cat suggests that Interactive Investors’ customers who opt for the ‘Investor’ plan could save more than £30,000 in charges over a 30-year period when compared to their largest competitor, which is understood to be Hargreaves Lansdown.

This calculation is based on an average stocks and shares ISA balance of £51,306, with annual top ups of £10,124 – which is the average level, according to HMRC.

This saving is more than the average UK annual salary, which is just under £30,000, and equates to the average deposit on a first home, which is £33,127 (according to Halifax).

Meanwhile, SIPP investors on the ‘Investor’ plan could save £20,000 in charges over 30 years when compared to Interactive Investor’s largest rival. This assumes a starting SIPP pot of £150,000 with no further contributions.