Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Fund Supermarkets: Save Money on Your Investments
Moneymagpie Team
3rd Mar 2021
Fund supermarkets offer an inexpensive route into investing. We’ll look at what they are, how they work, and who should use them.
You know investing in stocks and shares products is a good way to develop a long-term financial growth strategy, but how on earth do you do it, and where do fund supermarkets come in?
Some funds, like company shares, you can easily buy – even by calling the company directly to arrange a share purchase.
However, if you want to dip your toe into the stock exchange, you’ll need to familiarise yourself with other ways to buy stocks and shares.
That’s where fund supermarkets come in. Much like your high-street supermarket, you can buy any investment type that’s for sale to the public from one of these platforms.
But what is a fund supermarket, who should use them, and how do you set yourself up with one?
- What Is a Fund Supermarket?
- How Do They Work?
- How Do I Save Money Through a Fund Supermarket?
- Which Fund Supermarket Should I Use?
What is a fund supermarket?
Costs are kept so low compared to other investment routes because, like Tesco and Aldi, these supermarkets can buy in bulk and sell them to you at a lower cost than independent ‘stores’ (brokers).
Investing in a fund through a stockbroker or managed fund means there’s an initial set-up fee AND an ongoing annual fee to manage your money for you. Fund supermarkets cost half – or even NOTHING – when it comes to set-up fees and also offer much lower annual charges, too.
How do they work?
Fund supermarkets are ideal for investors who want to have a tight control of their financial decisions. However, they do require a lot of research – if you invest in a bad fund, you could lose all of your investment. It’s the same if you go via a stockbroker or independent financial advisor – but they already have a lot of in-depth market knowledge that you may not have, helping them to make informed decisions.
If you need more guidance for your investing decisions, try a different platform. Read our investment guides for more information!
However, for personal investors who want a direct handle on their financial decisions, the platform of a fund supermarket can be a real help. Not only is it often cheaper to use than going direct, it also helps you manage your ‘portfolio’ (your mix of investments) in one place.
If you don’t want to do all of this online, many fund supermarkets have a telephone service you can use, too.
Research and Buy in the same place
Fund supermarkets can also offer information on the funds, including which companies they’re invested in, historical and recent performance figures and an analysis of their investment styles. This is really important when you’re deciding which companies to invest in. Historical performance isn’t an indicator of future success, but it can give you a fair idea of what to expect.
Some fund supermarkets will only offer access to Unit Trusts and Open-Ended Investment Companies (OEICs) but others also offer access to stock-exchange listed investments like shares, Investment Trusts and Exchange Traded Funds (ETFs).
With a fund supermarket you can also put your investments into an ISA or a Self-Invested Personal Pension (SiPP) to save on tax. Remember: you can earn £2,000 in dividends before you have to pay any tax, even on funds in your ISA. After that £2,000 allowance is used up, you’ll need to pay tax based on your band (7.5% for basic rate, 32.5% for higher rate, and 38.1% for additional rate). You’re not taxed at source – you’ll need to complete a Self Assessment form each year.
How do I save money through a fund supermarket?
Fund supermarkets offer a cheaper way to purchase your investments compared to buying directly. They often waive the initial set-up fee completely, which could cost you up to 5% of your investment amount through other routes.
Instead, they’ll charge you two other types of fees: annual service charges and deal fees.
The annual fee covers the running costs of the fund supermarket platform and is typically less than 1% of your investments, but is sometimes a flat fee. The deal fee is a flat charge each time you buy or sell shares.
Someone who deals regularly would benefit from ‘frequent trader’ rates, which slashes the cost of each trade. It’s worth shopping around depending on whether you’re going to be a regular or lump-sum investor, and whether you’re going for long-term open-ended holding of shares and funds or want to trade frequently.
Your fund supermarket may also charge an exit fee to transfer your shares and stocks to another platform.
The real area you’re saving money is by making the decisions to trade yourself. You’re not relying on a fund manager to actively manage your investments or paying commission to a stockbroker.
Which Fund Supermarket should I use?
The best fund supermarket for you depends on your initial investment amount, how frequently you want to trade, and what you want to invest in. Some fund supermarkets, for example, may not let you purchase ETF or index trackers. So, before you set up an account, make sure you know what investment products you want to purchase and make sure your fund supermarket offers them.
Popular fund supermarkets that we suggest you take a look at include:
- AJ Bell – with trading fees from just £1.50
- Halifax Share Dealing – with no annual fee but £12.50 per trade
- Interactive Investor – £9.99 monthly fee but better deals for frequent traders
- iShares – specialising in ETFs
To start trading, set up an online account with your chosen fund supermarket. You’ll need to provide some personal details, such as proof of identity, in the registration process to prevent money laundering and fraud.
When you’ve got your account, use the information provided by the platform to find the funds you want to invest in. You should be able to view current and historical performances, as well as other critical information, of any fund you may wish to invest in.
You then buy the shares you want much like you would an online shopping purchase! Use your debit card to transfer money into your fund supermarket account and then complete the transaction you want.
There you go – you’re an investor!
*This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.
More articles
If you’re still getting to grips with the world of investing, then we recommend the following reads:
- Gilt Funds: How to Invest in Them
- How to Invest When you Don’t Know Anything!
- 5 Golden Rules for Beginner Investors
- Index-tracking Funds: The Easy Way to Invest in the Stock Market
And here’s another example of why fund supermarkets are becoming more attractive to the small investor.
Unless I’ve missed something, Santander is planning to replace its current normal dividend reinvestment arrangements, done via Scrip dividends, with a new dividend reinvestment plan (DRIP).
It has not paid cash dividends for some time.
My understanding is that the Scrip dividends were free (ie there was no share-purchase charge) and did not incur either Spanish withholding tax or UK income tax.
Moreover, cash left over from the purchase of whole shares was held in a Santander Shareholder Account (SSA), paying 5.0% AER. This could not be used for ordinary savings – only that related to Scrip dividend purchases.
From August Santander is – unless I have misunderstood something in its literature – changing the current arrangement so that cash dividends will again become the norm.
Shareholders will have the chance to receive three of the four quarterly dividends in cash (which is taxable) or have the dividend value reinvested to purchase more shares.
The fourth dividend will, for some reason that is not clear to me, be paid as a Scrip dividend.
My understanding is that DRIP purchases will also be taxable, but unlike the Scrip arrangement, will incur a charge of 0.5% for the shares purchased.
What’s more, any cash left after investing in whole shares will be held by the share-dealing firm,so Santander will pay no interest whatsoever on this money.
However, income from cash dividends may still be paid into the SSA, whose interest rate will be slashed to 0.5% AER.
Sounds like a triple whammy to the likes of me, who has a small shareholding and does not want the disproportionate cost of frequent small share purchases: a purchase charge, tax payable, and the virtual disappearance of the high-earning shareholder savings account, should I choose not to have my dividends reinvested.
Doesn’t sound particular fair or customer-friendly.
Hi Neville
This sounds annoying! I’ve asked Santander about it and this is their response:
“Santander is returning to paying standard cash dividends in 2015 and reducing the number of scrip dividends offered going forward. In January 2015, shareholders were notified that the next four dividend payments will be a combination of one scrip dividend (Nov 2015) and three standard cash dividends (Aug 2015, Feb 2016, May 2016) paid in respect of 2015 profits.
“Santander is returning to its previous model of paying standard cash dividends, normal for a company to pay in respect of profits generated in the year. The scrip dividend scheme was implemented as a temporary measure through the challenging financial crisis years. This was to maintain shareholder dividends and to reward shareholder loyalty while being able to recapitalise and consolidate capital reserves.
“With the bank now entering a growth phase, we have decided to return to a more traditional form of cash dividend and will be issuing three standard cash dividends in the next payment cycle. Only one scrip dividend is to be offered in the forthcoming cycle as a change in Spanish tax legislation has resulted in the tax advantages of the scrip dividend being reduced and therefore Santander is reducing the number of scrip dividends going forward.
“Santander is replacing the existing dividend reinvestment plan with a new DRIP which will operate without connection to an SSA. Since the reinvestment plan linked to your reader’s SSA is being terminated, no further reinvestments will take place from his account and funds will remain in the account earning interest. The interest rate on the account is being amended in line with the comparable range of savings products available.
“While the scrip dividend scheme was offered by Santander itself, the new DRIP is provided by share registrars Equiniti Financial Services Ltd and any cash left over after reinvestment will be held with Equiniti on behalf of shareholders and added to the next cash dividend to be reinvested. Funds will not be held on deposit with Santander. In line with DRIPS offered by other companies in the UK, no interest is paid on funds between reinvestment and a fee is charged for the reinvestment of cash dividends. The fee charged for the Santander DRIP is 0.5%, which is very competitive compared to the industry average and is applied to the value of the shares purchased, not each share purchased as mentioned in the email.
“While the funds in your reader’s SSA will no longer reinvest, shareholders who wish to use the balance to purchase shares can close their account to receive a cheque for the balance plus accrued interest and use the Free Share Purchase Service, which allows shareholders to buy shares free of dealing costs. This scheme operates on a monthly basis and is exclusive to shareholders with shares held in the Santander Nominee Service. For further information please visit santandershareview.com and click on ‘Shareholder Services’ > ‘Buy and Sell Santander shares’.”