Interactive Brokers ISA at a glance
With so many options for UK residents to save and invest tax-efficiently, it can be hard to find the right platform to use. So, we’ve created this Interactive Brokers (IBKR) Stocks and Shares ISA review to give you an insight into what this particular broker can offer you.
The IBKR ISA offers an affordable way to invest in a vast range of investments. Looking at the competition, IB’s ISA offering stands out because of:
- Low trade costs, particularly for international stock commission and low FX conversion costs.
- The ability to use a family advisor account to manage and trade ISAs for the whole family from a single structure.
- Interest paid on idle cash balances.
Want to know more about the IBKR ISA? To ensure you completely understand this account, throughout this Interactive Brokers ISA review, we’ll explain everything you need to know. This will include all the fees involved, how it compares against competitors, and the steps you need to take to transfer your ISA.
What is a stocks and shares ISA?
A stocks & shares ISA, also known as an investment ISA, is a tax-efficient investment account. This type of tax-efficient investment account is available to adult UK residents.
The tax-free ISA annual allowance limit for 2022/23 is £20,000. You can put your tax-free allowance into one ISA account, for example, the stocks and shares ISA. If you like, you can use this whole amount for your stocks and shares ISA, but keep in mind that the allowance can change yearly.
The main benefit of using a stocks and shares ISA is that for most investments held within the tax wrapper, you don’t have to pay dividend or capital gains (CGT) tax on any income or growth. This allows your portfolio to grow and compound over the years without being held back by a tax burden.
Another significant benefit is that when you want to withdraw funds from your ISA, unlike with a pension, any money you take out doesn’t count towards your income for that year – meaning you pay no additional tax on your funds down the line.
Interactive Brokers (IBKR) ISA at a glance
|🗺️ Supported Countries||UK|
|💰 Investing Fees||£3 for UK shares/€3 for European stocks/from $0.005 for US stocks|
|💰Platform Fee||£3 monthly (£1 for JISA) – deductible from your trading fees|
|🎮 Demo Account||Yes (investing demo account)|
|📈 Portfolio Rebalancing||Yes|
|💵 Minimum deposit||£0 (no minimum deposit)|
|📍Investment Instruments||Stocks, bonds, investment funds, ETFs|
Types of IBKR ISA accounts
There are two types of ISA accounts available with Interactive Brokers:
- Stocks and shares ISA account: this is for adults over 18 based in the UK, and you can invest up to £20,000 into this type of ISA during the tax year.
- Junior ISA (JISA) account: allows you to invest on behalf of someone under 18. You can invest up to £9,000 each tax year, which doesn’t count towards your annual allowance. The child can only access the account once they turn 18.
How it works
The sign-up process is relatively straightforward. You will first need to sign up for an account with Interactive Brokers. During the registration process, if you are a UK resident and select a GBP (pounds sterling) based account, you’ll be given the option to open a stocks and shares ISA.
You’ll need your personal details (including your address and national insurance number) when signing up. It doesn’t cost you anything to open up an IBKR account, and there’s no annual platform fee or minimum deposit.
So, you’re able to open up an ISA quite easily. Just keep in mind that you can only open and pay into one stocks and shares ISA account each tax year.
Interactive Brokers ISA fees
The costs and fees for the IBKR ISA are very competitive and straightforward. Here’s a table with everything laid out so that you can review the costs and fees yourself:
|Annual platform fee||£0|
|Withdrawal fees||1 free withdrawal per month (then £7 per withdrawal)|
|Stocks and shares ISA monthly activity fee||£3 per month (deductible from trading commissions)|
|Junior ISA monthly activity fee||£1 per month (deductible from trading commissions)|
|US shares||from $0.005|
|FX (foreign exchange) fee||0.03%|
Pros and Cons of the IBKR ISA
Here’s a quick summary of the main advantages and disadvantages of the Interactive Brokers ISA:
- No minimum deposit.
- One of the lowest trading costs (especially for international stocks), low platform fees, and a very small FX conversion charge.
- Interest is paid on idle cash balances.
- Massive selection of investment choices available, including the ability to buy fractional shares.
- Financial compensation protection of up to $500,000.
- Access to all of Interactive Brokers’ trading tools and investing resources.
- There is a monthly platform fee of £3, deductible from your trading fees.
- You must keep your cash balance in pounds sterling (GBP) and convert it to US dollars when buying US stocks.
- The IBKR ISA platform isn’t as easy to navigate as some competitors.
- It’s not a flexible ISA.
How it compares with other DIY ISA providers
Throughout this Interactive Brokers ISA review, we’ve run you through most of the key benefits and downsides, but let’s take a look at how the IBKR platform and its fees stack up against alternative DIY ISA providers:
|Variable||IBKR||Freetrade||AJ Bell||HL||Vanguard||iWeb||Barclays||InvestEngine||Interactive Investor|
|Minimum investment||£1||£2||£500 or £25/month||£100 or £25/month||£500 or £100/month||£1||£50||£100||£1 (or no tradings fees with £25/month min)|
|Platform fees||£3/month (or free if your trade fees are more)||£4.99/month||0.25%/year (max £3.50/month)||0.45%/year||0.15%/year||£100 (one-off fee)||£4/month min (or 0.2% funds + 0.1% other investments) – capped at £125/month||£0||£9.99/month|
|Share dealing fees||£3 UK shares/€3 European shares/from $0.005 US shares||£0||£1.5 for funds/£9.95 for stocks and shares||£0 for funds/£11.95 for stocks and shares (reducing to £8.95 and £5.95 with more trades)||£0 (only funds available, no individual stocks and shares)||£5||£3 funds/£6 other investments + £1 transaction charge||£0||£5.99 (you get 1 free trade a month, and some international shares cost £19.99)|
|Foreign exchange fees (FX)||0.03%||0.45%||0.75% (reducing to 0.5% and 0.25% for large trades)||1% (reducing to 0.75%/0.5%/0.25% for large trades)||None||1.5%||1% (reducing to 0.75%/0.5%/0.25%/0.1% for large trades)||None||1.5% (reducing to 1.25%/1%/0.5%/0.25% for large trades)|
Transfer a stocks and shares ISA to Interactive Brokers
It is possible to transfer your existing ISA over to IBKR. You’ll need to contact Interactive Brokers directly and file an ISA transfer request (via the transfer and pay funding page in the Client Portal).
Once you’ve done this, they will contact your existing stocks and shares ISA provider to initiate a transfer. Your existing provider has to let you transfer out if you choose to, but it can take up to 30 calendar days. There’s no charge for an ISA transfer, but not all providers will be supported.
Suppose you hold securities or assets in your existing stocks and shares ISA that are not supported on the Interactive Brokers platform. In that case, you’ll need to first sell (liquidate) these and convert them into cash to be transferred over, and then you can buy similar (or different) investments.
Always make sure that you use the official Interactive Brokers ISA transfer service. Don’t withdraw everything from your current provider and move it yourself because you could lose the tax protection you’ve built up over time.
How safe is the Interactive Brokers ISA?
Interactive Brokers is regulated by the FCA (Financial Conduct Authority), but it is not covered by the Financial Services Compensation Scheme (FSCS) because your account is technically held with the US affiliate.
However, this means you get more protection as a member of the SIPC compensation scheme in the US. This means if the company was to fail, up to $500,000 of assets would be protected (with a $250,000 cash limit) – much higher than the £85,000 protection offered by the FSCS.
How to pick the right stocks and shares ISA
Finding the right ISA for you depends on what you’re looking for and how regularly you invest. Here are some things to look out for and questions to ask yourself when you’re trying to find the best stocks and shares ISA:
- Does the platform offer commission-free trading in the UK, and how cheap are the platform and share dealing fees?
- Is there a discount for frequent investors?
- What is the investment choice like?
- How easy is it to use the platform, is there a mobile app?
- Do you have to pick all the investments, or are there ready-made portfolios?
- Is there a cheap FX fee if you plan on buying international shares?
- How reputable is the provider?
- Does the platform offer good customer service?
- Are there any incentives like free stocks or cashback for joining?
The truth is, there’s no single ‘best’ ISA provider. It’s all about finding the one that fits your needs as an investor. Many platforms structure costs and fees differently. So some will work out cheaper for you depending on what you invest in and how frequently.
As mentioned, you can open and pay into one stocks and shares ISA each tax year. So, if you try one out for a while and don’t like it or find it expensive for your needs, you can always transfer to another platform down the line.
Do Interactive Brokers offer a Lifetime ISA?
Unfortunately not. Right now, it just offers a stocks and shares ISA and a junior ISA (JISA).
Do Interactive Brokers offer a Cash ISA?
It doesn’t at the moment. However, you can earn interest on cash held within your stocks and shares ISA. You only have a £20,000 allowance to use between your accounts anyway, so you could still use your IBKR ISA to hold your investments and some cash.
Do Interactive Brokers offer an Innovative Finance ISA?
Not at the moment. Innovative Finance ISAs (IFISA) mainly concentrate on peer-to-peer lending (P2P), which isn’t something that Interactive Brokers currently offer.