Got a nest egg of less than £30k? You can invest it for £60 a year

Investment platform Interactive Investor will launch a new product this week, designed to entice savers with small nest eggs. 

Investor Essentials, available from Wednesday, will allow customers with up to £30,000 to invest for a flat fee of £4.99 a month.

Until now, Interactive Investor customers on its most popular plan have been charged £9.99, regardless of how much they have invested. The model meant that Interactive Investor’s pricing was competitive for those with large pots, but not for those with less to invest.

The new offering will give those with smaller pots access to the same range of investments as those with larger sums – but for half the price.

Nest egg: Customers with up to £30,000 can invest for a flat fee of £4.99 a month

Jeremy Fawcett, founder of financial consultancy Platforum, says: ‘Interactive Investor has always been one of the more expensive options for those starting out on their investing journey, but one of the most competitive for those further on.

‘This product is the missing first rung on the investment ladder.’

Once a customer starts hitting the £30,000 threshold, they will be automatically shifted over to the £9.99-a-month plan. Existing customers with investments under £30,000 will have to request to move over to the Investor Essentials plan if they wish.

Richard Wilson, chief executive of Interactive Investor, says: ‘Historically, a percentage-based charging structure has generally been cheaper for people near the start of their investment journey.

‘Providers then hope their customers will stick with them without ever calculating the cost savings they could be making over the long-term as their investment grows.

‘Investor Essentials, with its low monthly cost, changes everything and provides greater value and choice to a much broader audience.’

As with investors on the standard Investor Plan, those on Investor Essentials will be able to set up free regular investing for funds, investment trusts and popular UK shares. They will also pay the same fee of £5.99 for every trade of UK and US shares, funds and trusts.

However, unlike on the Investor Plan, they will not get a free monthly trade or free access to a Junior Isa.

The new pricing means that Interactive Investor is now cheaper for savers with between £15,000 and £30,000 than its rivals Hargreaves Lansdown, AJ Bell YouInvest and Fidelity, according to calculations carried out for the platform by consultancy The Lang Cat (see table).

Fidelity is still cheaper for savers with £10,000, even after its price increases next month.

However, Holly Mackay, of investment website BoringMoney, points out that there are a number of newer platforms and products that target first-time investors.

 Although not all offer a full range of funds, investment trusts and shares, many of them offer very competitive fees. ‘For this target market, I’d say the key competitors are Dodl (an app-based platform from AJ Bell), Freetrade and Moneybox,’ she says.

‘Dodl has a limited range of funds and shares but costs 0.15 per cent a year – that’s £15 on a £10,000 investment. Freetrade costs £4.99 a month for an Isa, which is £60 a year on a £10,000 investment. And Moneybox is £1 a month plus 0.45 per cent a year – that’s £57 a year on a £10,000 investment and includes a very limited range but a super simple app.’

Millions of Britons started investing their savings for the first time during the pandemic and the following months. Many found they had more time and money on their hands during lockdowns and were enticed by strong financial markets.

Most have continued to invest and are a cohort that is difficult to ignore. Last April, AJ Bell launched Dodl to entice these newer investors, and Interactive Investor’s move is seeking to attract them as well.

Once investors have joined an investment platform, they rarely shop around and change. Therefore, if a platform can entice a first-time investor, there is a good chance they will hold on to them for decades to come.

But while the number of first-time investors is growing, there are still millions of people who are leaving large sums in savings accounts instead of investing.

Over the long term, savers tend to be able to make more money by investing their cash than by leaving it to earn interest in a savings account.

The Financial Conduct Authority is on a mission to reduce the number of consumers who could benefit from investment earnings, but are missing out. The financial watchdog has set a target to decrease this number by 20 per cent between 2021 and 2025.

Platforum’s Fawcett adds: ‘Investors with small pots are a particular focus for the FCA at the moment. It does not make sense to have large sums of investible assets in a savings account – especially at a time of high inflation.

‘This move by Interactive Investor will help it to service this group more effectively.’