If you commonly get your finance-related content from social media platforms like YouTube, then you will most likely have come across terms such as a Traditional 401K, Roth 401K, and Roth IRA quite regularly, especially if you follow US content creators. These are specialised retirement accounts for US citizens and are completely irrelevant to you if you are based in the UK.
The major appeal of these accounts is not only the tax benefits they bring but they also allow you to have full autonomy over the investments you choose, unlike many pension-related products where the individual has minimal input besides telling the pension provider what their risk tolerance is.
In the UK, there is also a range of solutions that will give you the equivalent benefits that you can get from a 401k, such as Individual Savings Accounts (ISAs) and Self-Invested Personal Pensions (SIPPs).
In this blog post, we will explain the differences between each account type and tell you about some of the best providers of online SIPPs and ISAs in the UK.
Key differences between a 401k and Equivalents in the UK
If you would like to place your funds into an investment vehicle that is as similar as possible to a Traditional 401K, Roth 401k, or a Roth IRA, then it is firstly important to know how each of them compares in terms of their tax benefits and how quickly you can access your funds.
Firstly, here is a comparison of the key characteristics of a Roth IRA, Roth 401K, and Traditional 401K:
| Differences | United States | ||
| Roth IRA | Roth 401K | Traditional 401K | |
| Tax on Contributions | Roth 401K contributions are made with after-tax dollars | Roth 401K contributions are made with after-tax dollars | Typically made on a pre-tax basis |
| Contribution Limits | $6,500/$7,500 per year, depending on age | $22,500; if you are over 50, this increases to $30,000 | $6,500/$7,500 per year, depending on age |
| Tax-Free Growth? | Tax-free | Tax-free | Tax-free |
| When can you withdraw? | Once invested for 5 years at a minimum. Penalties may apply if withdrawn before the age of 59 | You can start drawing down your pension at 59 ½ or older | You can start drawing down your pension at 59 ½ or older |
| Tax on withdrawals | No taxes or penalties if you do not withdraw early | Not taxable | Ordinary income tax rates and state taxes |
| Can your Employer Contribute? | Yes, Employer contributions to a Roth IRA are generally taxable when they are made | Yes, employer matches will, however be subject to tax | Employer contributions to a traditional IRA are generally not taxed when they are made |
| Can you manage your own self-directed pension? | Yes | Yes | Yes |
Now that we know how 401Ks and Roth IRAs work, here is how the equivalent accounts in the UK work:
| Differences | United Kingdom | |
| ISAs | SIPP | |
| Tax on Contributions | Contributions are made from income post taxation | Depending on your income, you could receive tax relief up to 45% on contributions made to your SIPP |
| Contribution Limits | Per Year: Cash ISA £20k; Stocks and Shares ISA £20K; Innovative Finance ISA £20K; Junior ISAs £9k; Lifetime ISA £4K | Up to 100% of your annual income to your SIPP each tax year, but this is capped annually at £60,000 |
| Tax-Free Growth? | No capital gains tax or income tax on dividends/interest | No capital gains tax or income tax on dividends/interest |
| When can you withdraw? | Funds can be released at anytime | You need to be at least 55 (rising to 57 from 2028) |
| Tax on withdrawals | Withdraw anytime with no tax impact | Once you reach 55, you can withdraw 25% of your SIPP tax-free; all subsequent withdrawals are subject to income taxation |
| Can your Employer Contribute? | Yes, but you or your employer will not receive any tax relief on this contribution | Yes |
| Can you manage your own investments? | Yes | Yes |
An explanation of each type of ISA
There are a couple of different variants of Individual Savings Accounts (ISAs), Cash ISA, Stocks and Shares ISA, Innovative Finance ISA, Lifetime ISA, and Junior ISA.
In the 2023/2024 tax year, your ISA allowance is £20,000. You can either split your annual allowance across multiple ISAs (for example, £10,000 in a stocks and shares ISA and £10,000 in a cash ISA) or keep it all in one.
You cannot carry over your ISA allowance. If you don’t use your whole allowance in a tax year, it will be lost.
- Cash ISA: Savings account for short-term and/or emergency needs.
- Stocks & Shares ISA: An investment account used to buy stocks, ETFs, bonds, etc.
- Innovative finance ISA: Available only since 2016, this account is designed for peer-to-peer (P2P) lending investments, a form of investing where you directly lend money to businesses.
- Lifetime ISA: With this alternative, your incentive is to save for a first home or retirement. You may invest in cash and/or securities. The government offers a 25% bonus on deposits—the more restricted type of ISA.
- Junior ISA: this is a savings account that will allow you to plan for children’s future needs, such as education. You can contribute up to £9,000 per annum to this ISA, which will not reduce your contribution limits to your own personal ISAs.
Keep reading if you are interested in learning where you can find an online provider offering each type of ISA.
What is a SIPP (Self-Invested Personal Pension), and How Does it Work?
A SIPP (Self-Invested Personal Pension is a method of saving for retirement like any other pension, the only difference being you can have full autonomy over what investments you want to be part of your pension if you so choose.
Like a regular pension, any contributions you make to the SIPP will be eligible for tax relief of anywhere between 20-45% depending on your income. You can contribute up to 100% of your annual income to your SIPP each tax year, but this is capped annually at £60,000.
Shortly, we will take you through a couple of providers that are currently offering SIPPs to their customers.
Online Brokerages that offer ISAs/SIPPs in the UK
| Broker | Stocks and Shares ISA | Cash ISA | Lifetime ISA | Innovative Finance ISA | Junior ISA | SIPP |
| Interactive Brokers | ✔ | ✘ | ✘ | ✘ | ✔ | ✔ |
| Trading 212 | ✔ | ✘ | ✘ | ✘ | ✘ | ✘ |
| Freetrade | ✔ | ✘ | ✘ | ✘ | ✘ | ✔ |
| Vanguard | ✔ | ✘ | ✘ | ✘ | ✔ | ✔ |
| Fidelity | ✔ | ✘ | ✘ | ✘ | ✔ | ✔ |
| Saxo Bank | ✔ | ✘ | ✘ | ✘ | ✘ | ✔ |
| Hargreaves Lansdown | ✔ | ✔ | ✔ | ✘ | ✔ | ✔ |
| Interactive Investor | ✔ | ✘ | ✘ | ✘ | ✔ | ✔ |
| AJBell | ✔ | ✘ | ✔ | ✘ | ✔ | ✔ |
Interactive Brokers (IBKR)
Accounts on offer: Stocks and shares ISA, Junior ISA, and SIPPs.
Fees: Compared to their general investing account, the fee structure for ISAs and SIPPs is very straightforward.
The fees on IBRK’s ISAs and SIPPs are as follows: £3 per trade for Western European stocks, with no added spreads, account minimums, or platform fees. For larger trades (those over £6,000), the cost is .05% of trade value. Pricing on US stocks starts at just USD 0.005 per share.
Interactive brokers are available worldwide and have one of the most comprehensive platforms in terms of choice and tools (such as Trader Workstation) that you can use for your investing. IBRK may be more suited to seasoned investors with some prior experience, as it can be a little daunting for beginners.
Trading 212
Accounts on offer: Stocks and shares ISA
Fees: Trading 212 is a relatively low-fee brokerage. When using their stocks and shares ISA, you will only face FX conversion fees of 0.15% for any shares you hold in a currency not denominated in pounds sterling.
Trading 212 has one of the best online general investing platforms in the UK with its user-friendly mobile app and web design. Many added features make Trading 212 a good choice, such as AutoInvest and Pies, which can simplify your investing life by making diversification and automation simple.
Hargreaves Lansdown
Accounts on offer: Stocks and shares ISA, Cash ISA, Lifetime ISA, Junior ISA, and SIPPs.
Fees: There are two different types of fees you will face if you use one of Hargreaves Lansdown’s ISA accounts; annual account charges and dealing charges.
The annual charges will depend on whether you hold funds or shares. For shares, there is a flat annual charge of 0.45% capped at £45.
There is also a 0.45% annual charge on funds on account on the first £250k; this then decreases to 0.25% on amounts in excess of £250k up £1m, and then 0.1% on amounts in excess of £1m up to £2m.
You can also be charged dealing fees on your account. Note there are no dealing charges when you buy and sell funds.
| Number of deals per month | Charge per deal |
| 0-9 | £11.95 |
| 10-19 | £8.95 |
| 20+ | £5.95 |
Hargreaves Lansdown has a very similar fee structure for their SIPPs, where you will also pay annual account charges and dealing fees. The only difference between ISA fees and those for SIPPs is that your annual account charge is capped at £200 versus a lower cap of £45 for SIPPs.
Although the Hargreaves Lansdown fees are quite high, they do offer a full suite of services, including expert financial advice, compared to many other brokers who are just execution only and will not help you in any advisory capacity, which could be a selling point for many potential clients.
Freetrade
Accounts on offer: Stocks and shares ISA and SIPPs.
Fees: You can access a stock and shares ISA with either a Standard plan (£5.99 p/m) or a Plus plan (£11.99 p/m).
The additional benefits of going with the Plus plan are that you get a lower FX fee of 0.39% versus a fee of 0.59% on the Standard Plan, priority customer service, access to Freetrade Web, and a higher interest rate on uninvested cash.
If it is a SIPP you are looking for, then you will need a Plus plan with Freetrade. You won’t have fees besides the monthly subscription of £11.99 and FX conversion fees of 0.39%.
Founded by Adam Dodds, who was a former KPMG employee, Freetrade had relatively humble beginnings, they raised their initial funding through an equity crowdfunding scheme, and because of this, they have over 13,000 shareholders.
Later rounds of VC funding have helped Freetrade scale to where it is today as one of the most open and transparent brokers available in the UK, which is evident in its freemium pricing model.
Even if you are not interested in opening an ISA or SIPP, Freetrade also has a no-fee basic plan that is very easy to use for a beginner.
Saxo Bank
Accounts on offer: Stocks and shares ISA and SIPPs.
Fees: There are a number of different fees to be aware of when you use Saxo Bank as your provider for either a stocks and shares ISA or a SIPP.
- Custody fees: A fee of 0.15% p.a. (classic/platinum accounts) or 0.09% (VIP accounts).
- Currency conversion fees: 0.25%.
- Trading fees: these will vary depending on the type of asset. For example, the cost per trade on a US exchange is 0.08% (min $1) for a classic account, 0.05% (min $1) for a platinum account and 0.03% (min $1) for a VIP account.
- Entry and exit fees: none.
Saxo Bank is a leading Danish investment bank with over 900,000 users, providing a wide range of financial services to clients worldwide. With its innovative trading platforms, such as SaxoTraderGo and SaxoTraderPro, you can trade like someone on Wall Street. But Saxo Bank would be one of the more expensive brokers on the market offering ISAs and SIPPs if cost is your primary concern.
Fidelity
Accounts on offer: Stocks and shares ISA, Junior ISAs, and SIPPs (inc Junior SIPP)
Fees: The service fee is 0.35% for investments with a value of £250k or less, and 0.20% of the value of your investments is in excess of £250k.
The portion of the fee you pay on exchange-traded investments (shares, exchange-traded funds (ETFs), etc.) within an ISA or SIPP is capped at £90 (£7.50 a month). Some funds may also have a performance fee and buy/sell charge. There are no service fees for Junior ISAs.
There are additional charges for each buy/sell transaction you place (including switches and dividend reinvestments).
- £1.50 for deals as part of a regular savings or withdrawal plan or for reinvestment of income or a dividend.
- Simple charge of £7.50 for each deal placed online.
Fidelity offers a wide variety of services; with Fidelity, you can manage your general investments, get wealth management advice, and plan for your retirement all in one place.
Another thing we really like about Fidelity is how they seamlessly embed expert advice and research tools into their offering. But please note Fidelity’s advice service is targeted at people with a minimum of £100k to invest.
Vanguard
Accounts on offer: Stocks and shares ISA, Junior ISAs, and SIPPs.
Fees: The following is a list of fees you will encounter when you use Vanguard as your ISA or SIPP provider.
- Account fee of 0.15% per year
- Ongoing Fund management costs 0.22-0.24% for ready-made portfolios and 0.06%-0.78% for individual funds.
- Fund transaction costs: 0.02-0.09% for ready-made portfolios and 0.01-0.89% for individual funds.
Vanguard is a household name for investors around the world; you’ve probably invested in one of their funds before, as they are the largest provider of mutual funds and the second largest provider of ETFs worldwide.
You can keep things very simple with Vanguard; if you are the type of investor who likes to put their money into a fund that tracks indexes such as the S&P 500 or FTSE 100, then Vanguard will have the perfect solution for you.
Interactive Investor
Accounts on offer: Stocks and shares ISA, Lifetime ISA, Junior ISAs, and SIPPs.
Fees: Interactive Investor has three types of plans, their Investors Essentials plan, which costs £4.99 (for investments up to £30k) per month; their Investor plan, which costs $9.99 per month (for investments > £30k); and their Super Investor plan which costs £19.99 per month which has lower ongoing UK and US trading fees.
You can open a stocks and shares ISA with either an Investor Essentials plan or an Investor plan.
If you want to open a SIPP, you will need to have the Investor plan and also pay an additional £10 per month. Also, with this plan, you can add as many Junior ISAs as you have children.
Besides the monthly fees, Interactive Investors’ online trading fees are as follows:
- UK Shares & Funds, US Shares £3.99
- Other International Shares £9.99
- Dividend Reinvestment £0.99
Interactive investors have a strong focus on the UK market and can boast that 1 in 4 UK shares are executed on their platform. Another stamp of approval is that over 50% of interactive investor’s customers have been with them for 10 years or more. You can only achieve stats like that if you run a tight ship and interactive investors have a great customer satisfaction rate.
Interactive Investor currently has a promotion running where you can get a £50 free trading credit when you sign up for an ISA or a Trading Account by the 31st of July.
AJBell
Accounts on offer: Stocks and shares ISA, Junior ISAs, and SIPPs.
Fees: 0.25% annual custody charge (capped at £3.50 per month for investment trusts, ETFs, gilts, and bonds).
There are additional trading fees of £1.50 for funds/dividend reinvestments and £9.95 for shares (this reduces to £4.95 if there were 10 or more online share deals in the prior month).
FX charges also apply at 0.75% on the first £10k, 0.50% on the next £10k, and 0.25% for values over £20k.
If you have any cash sitting in your ISA, you can earn 1.15% on amounts less than £10k and 1.65% on amounts greater than £10k.
With over 469,000 customers, AJBell is a homegrown UK company that takes a no-nonsense approach to its investment services. They even have a separate platform called Dodl, suitable for beginners who may find the whole world of investing intimidating.
Government levies
On top of the fees we have already discussed for each of the providers in this blog post, you may also have to pay additional government taxes and levies on certain transactions.
- UK stamp duty of 0.5% will be applied when you buy UK shares.
- A PMT levy of £1 is applied when buying or selling UK shares where the value of the shares is worth more than £10k.
- FINRA fees & SEC shares are applied by the US government when selling US shares at a rate of $0.000145 per share and 0.00229%, respectively.
Is your money safe when you invest it in an ISA?
If the provider goes bankrupt, you are protected under the Financial Services Compensation Scheme (FSCS). This protects your savings up to £85,000 per person, per institution.
For those with large amounts of capital to invest, it may be wise to split this investment out between a couple of providers so you can ensure all of it is covered by the FSCS.
Final Thoughts
It can be quite overwhelming when choosing which provider to use when setting up an ISA or a SIPP. The fees and quality of service can vary greatly from provider to provider. One thing you can be guaranteed is that setting up an ISA or SIPP can greatly help you grow your wealth tax-efficiently.
One way to whittle down the list of providers is to assess exactly what type of investments you want to be included in your ISA or SIPP? Do you want a wide variety of stocks from all over the world, or would you be happy to allocate an amount to a single ETF each month? This should help guide you in the right direction.
