Best ETF Platforms in the UK

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Contents:

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We’ve compiled a list of the best ETF platforms in the UK. These are our top ten ETF trading platforms for buying, selling, and holding UK ETFs, ETF CFDs, index funds, and other investment products.
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Please remember that when you invest, your capital is at risk. ISA, pension, and tax rules also apply.
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The ETF trading platforms listed below are authorised and regulated by the UK’s financial watchdog, the Financial Conduct Authority (FCA).
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Here are the best ETF platforms in the UK:
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An ETF is an investment fund that trades on an exchange like an individual stock. An ETF will typically track a particular index, sector, commodity, or asset.

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When an investor is looking to purchase shares in an individual company such as Apple or Tesla, they buy this through their investment platform or trading app, which is connected to a stock exchange.

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Apple is listed on a stock exchange in the USA known as the NASDAQ. If you want to purchase some Apple shares, you will place the order through your app or platform. They would then pass the order through the NASDAQ exchange to purchase the shares for your account from another investor selling Apple shares simultaneously.

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An ETF is an investment fund that is traded in the same way. ETFs are listed on a specific stock exchange, such as the NASDAQ, the New York Stock Exchange or the London Stock Exchange, and buyers and sellers can trade them directly.

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Rather than investing in a single stock, an ETF will hold hundreds or even thousands of different individual companies or investments. When you buy an ETF, you are investing in multiple companies in a single sector or geography or across various industries and geographies.

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Let’s start with the basics. Before we explain how an ETF works in more detail, we need to take a step back and start with the F in ‘Exchange Traded Fund’.

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An investment fund (or fund) is essentially a pool of investors’ money. It is run by a professional investment company that offers to invest people’s money in a certain way. Say, for example, an investment manager decides to start a fund called the Big Investment Automotive Fund to invest in car companies. Investors could hand over their money to the investment manager, who would then combine all of this cash and allocate it to companies like Ford, GM, Tesla and Volkswagen.

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Not only will the fund specify the type of investments it will hold (such as car companies), but it will also specify the strategy it plans to use to generate returns. This could be an income strategy that focuses on companies that pay consistent dividends, a high-growth strategy which aims to find smaller companies with big growth potential, or a strategy that focuses on something else entirely.

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There are funds for just about any type of investment you can imagine. Some of them are very specific, like the automotive example above. Some are broader, such as investing across the entire UK or US stock market. Some are much broader, investing across the whole “world” stock market.

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Stocks make up a significant component of fund investment, but there is a huge variety of fund options for other asset classes too. Examples include bonds or fixed interest, real estate, infrastructure, gold and even cryptocurrencies like Bitcoin and Ethereum.

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These funds allow any investor to purchase a portion of the fund, regardless of whether they have £100 or £1 million to invest. The best ETF brokers in the UK will allow everyday investors to buy UK ETFs with as little as £25 a month. Some even accept a £1 initial deposit.

Now you understand that an investment fund is a pooled pot of money invested in a specific way by a professional fund manager. But what about the ‘Exchange Traded’ part of the ETF acronym? All this means is that the ETF can be traded on a stock exchange, just like a regular single share in a company.

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Investment funds were traditionally only able to be bought and sold directly from the fund manager and only priced at the end of each day.

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For example, if you wanted to buy a fund, you would register with an investment app or platform where you would be able to buy units of a fund based on the next available closing day price. With an ETF, you can buy and sell every minute of the trading day and hold multiple different ETFs on your trading app or platform.

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We will get into the specifics of the pros and cons of each next, but really the differences are not that significant. Large investment houses will often offer both a traditional fund and an ETF of the same fund.

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While not all ETFs are index or passive investments, the vast majority are. This is why ETFs are most commonly compared to index funds rather than actively managed investment funds.

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The advantages of buying ETFs in the UK are diversification, low cost, liquidity, easy access to international markets and professional management. On the other hand, the disadvantages of buying ETFs are lack of choice and control, ongoing charges, market risk and tracking errors.
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Here is a breakdown of the pros and cons of investing in ETFs:

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Pros of Investing in ETFs

1. Diversification: Investing by buying an ETF means you can access a much greater level of diversification. A fund manager can invest your money into hundreds or even thousands of different individual holdings through a single ETF. This is very difficult and expensive to do yourself, even if you have millions to invest.
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2. Low Cost: Because the costs of investing are shared across all of the investors in the fund, the fund manager is able to provide significant benefits for a relatively low cost. ETFs also have a lower expense ratio compared to actively managed mutual funds.
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3. Liquidity: ETFs are traded just like stocks, which means you can buy and sell them quickly and easily during trading hours. Once you place a trade with an ETF broker, you’ll receive the price as of that moment, and if it’s a sell order, the money will be in your bank account in a matter of days.
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4. Accessibility: ETFs provide access to niche or hard-to-reach markets, such as international markets or specific sectors. This means you can gain exposure to these markets, even if you do not have the time, resources or expertise to invest directly.
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5. Professional Management: ETFs are managed by experienced professionals, which can be beneficial for investors who lack the skills, time or resources to manage their own investments.

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Cons of Investing in ETFs

1. Less Choice: Not all investment funds are available as ETFs. Index or passive funds are the most common ETFs available, with actively managed funds and niche investments in areas such as emerging markets or specific market sectors less common.
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2. Ongoing Charges: While the value for money of an ETF is excellent, it is still more expensive than investing in direct shares. These have no ongoing costs, so you will pay slightly more to hold ETFs rather than individual stocks directly.
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3. Market Risk: ETFs, like any other investment, are subject to market fluctuations and overall market conditions, leading to potential losses. Investors need to understand that ETFs, while considered a safe investment class, are not risk-free investments. You should always consider your own risk tolerance when deciding whether to buy an ETF or any other type of investment.
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4. Tracking Error: Passive ETFs that track an index may not perform exactly as the underlying index, leading to potential differences in returns. This is because there can be differences between the ETF and the index it tracks due to factors such as expense ratios, tax, and timing differences.
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5. Lack of Control: When buying ETFs, you have limited control over the specific assets that make up the ETF, which means that you are relying on the ETF provider to make investment decisions on your behalf. While this can be beneficial for investors who do not have the time, resources or skills to make these decisions themselves, it can also limit their ability to customise their portfolio to meet their specific investment goals.

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Choosing the right ETFs can be a daunting task, especially with the vast array of options available in the UK market. ETFs are known for their simplicity, diversification, and cost-effectiveness, which makes them a popular choice among investors.

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To help you make an informed decision, we have outlined some key factors to consider when selecting ETFs in the UK:

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1. Investment Goals and Risk Tolerance: First and foremost, it’s essential to establish your investment goals and risk tolerance. Are you looking to achieve long-term growth, income, or a combination of both?
   
   Your investment horizon and the level of risk you’re comfortable with should guide your selection process. For instance, conservative investors might opt for ETFs focused on stable, income-generating assets, while aggressive investors may gravitate towards high-growth or niche sectors.

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2. Diversification: One of the main advantages of investing in ETFs is the diversification they offer. A well-diversified portfolio can help reduce overall risk by spreading investments across various asset classes, sectors, and geographic regions.
   
   When choosing an ETF, consider its underlying holdings and ensure they align with your diversification goals. For example, a global equity ETF can provide exposure to numerous international markets, while a sector-specific ETF will focus on a particular industry.
   
   
3. Costs: Costs are a crucial factor when selecting an ETF, as they can significantly impact your overall returns. Two primary costs associated with ETFs are the expense ratio and transaction fees.
   
   The expense ratio is an annual fee expressed as a percentage of the fund’s total assets, while transaction fees are charged when you buy or sell an ETF. Look for ETFs with low expense ratios, and be aware of any transaction fees imposed by your broker.
   
   
4. Performance and Tracking Error: While past performance does not guarantee future results, it can give you an idea of how an ETF has fared over time. Examine the historical returns of the ETFs you’re considering and compare them to their benchmarks.
   
   Additionally, check the tracking error, which measures the difference between the ETF’s performance and that of its underlying index. A lower tracking error indicates a more accurate replication of the index’s performance.
   
   
5. Liquidity: Liquidity refers to the ease with which an investment can be bought or sold without significantly impacting its price. In the context of ETFs, liquidity is determined by the trading volume of the fund and the liquidity of its underlying assets.
   
   A highly liquid ETF allows for efficient buying and selling, whereas a less liquid ETF may be more difficult to trade and could result in higher transaction costs. Look for ETFs with ample liquidity to ensure smooth trading.
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6. Fund Provider: Finally, consider the reputation and expertise of the ETF provider. Established providers with a proven track record can offer more confidence in the fund’s management and overall stability.
   
   It’s also worth noting that larger providers may have more resources to keep costs low and provide a broader range of investment options.

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You can buy ETFs in the UK from investment platforms such as XTB, Interactive Investor, InvestEngine, and Vanguard. These platforms not only facilitate the purchase of ETFs but also provide the resources, guidance, and educational materials needed to create an investment portfolio, regardless of your level of experience or investment know-how.

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Follow the steps below to buy ETFs in the UK:

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1. Choose a Tax Wrapper: The first step is to decide which type of tax wrapper you want to invest with. A tax wrapper reduces the amount of taxes you pay on the gains from your investments. Some examples include a Stocks and Shares ISA, Lifetime ISA, Private Pension or General Investment Account. Keeping taxes down can significantly affect your long-term gains, so it is worth taking the time to choose the best option.
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2. Choose an Investment Platform: A platform is a broad term for any broker, app or website that allows you to purchase investments. There are a huge number of options to choose from, all with their own pros and cons. Make sure you choose one that offers the tax wrapper you selected in the first step. We’ve broken down the details for several of the best options for investing in ETFs above.
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3. Create an Investment Strategy: Most people follow Bogleheads’ Three-Fund Portfolio strategy, which suggests building a three-fund portfolio comprised of only basic asset classes, usually a domestic stock “total market” index fund, an international stock “total market” index fund and a bond “total market” index fund. We break this down in simple terms in our How to Invest in Your 20s and 30s or Best Platforms for Index Funds article.
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4. Pick Your ETFs: The next step is to choose the ETFs you want to invest in within your new account. This is not a case of just picking the ones that offered the best returns from last year. You need to decide on an investment strategy and then find ETFs that match it. Do you want to invest in the US, the UK or a mixture of the total world stock markets? Do you want to only invest in stocks, or do you want some bonds and property investments too? Are you investing for income or capital growth? Different ETFs will offer strategies and investments that align with your answers to these questions. Here is a list of our top 10 ETFs to get you started.
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5. ‍Consider Fees: It is important to consider ETF fees. If you are finding it hard to choose between a few different ETFs and cannot see much difference between them, it might be worth going with the one that has the lowest fees.
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6. Buy ETFs: Once you have done all the above, you can start buying ETFs. Type the name or ticker symbol of the ETF into the search bar of your preferred ETF broker’s desktop or mobile app. Once you locate the ETF, you may buy as many units as you want.
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7. Invest Small Amounts Regularly: It is important to keep on investing small amounts into your portfolio regularly. Investing small amounts regularly is known as “drip-feeding” into your investment pot and can sometimes be better than investing a huge lump sum once. This investment strategy is often called dollar-cost averaging or pound-cost averaging.
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8. Monitor Your Portfolio: Once you find your rhythm, remember to keep an eye on your investments and rebalance your portfolio when necessary.

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ETF fund managers charge for their services the same way that almost every investment fund does. That is, they charge investors a percentage of the value of the money that they look after. This fee can vary pretty widely, from as low as 0.04% to over 2.00% for more niche or exotic ETFs.

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This means that if an ETF were charging 0.25%, an investor with an average balance of £20,000 would pay annual fees of around £50. Pretty good value to have a professional manager run your portfolio for you.

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‍Keep in mind that the ETF fee is just one of the types of charges that you could incur. Some platforms also charge you money to hold funds or to trade as well, though there are a number of free options available to investors these days.

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Here is a breakdown of some of the fees you could incur when buying ETFs:

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1. Fund Management Fees: This is a common type of ETF fee, varying from as low as 0.04% to over 2.00% for more specialised or exotic ETFs. For instance, an ETF charging a fee of 0.25% would mean an investor with an average balance of £20,000 would pay approximately £50 per year. This fee is essentially compensation for the fund manager’s expertise and services in managing the portfolio.
   
   
2. Platform Fees: Apart from fund management fees, certain investment platforms may also levy their own fees. These can include account maintenance fees or trading fees, which are applicable when you buy or sell ETF shares.
   
   
3. Ongoing Charges Figure (OCF) or Total Expense Ratio (TER): This is a key ETF fee to consider. It represents the total annual cost associated with managing the fund. The OCF/TER includes administrative expenses, fund management fees, and operating costs, all expressed as a percentage of the fund’s total assets. This is an inclusive figure that offers a comprehensive view of the cost of investing in a particular ETF.
   
   
4. Transaction Costs: These are fees that you might incur when you buy or sell an ETF. The fund manager charges these, and they can vary significantly depending on the fund you choose.
   
   

Bear in mind that while fees are a crucial factor in choosing an ETF, they are not the only one. You should also consider the ETF’s performance, the assets it holds, its risk profile, and how well it fits into your overall investment strategy. With the continued growth of the ETF market, a plethora of cost-effective options are available to today’s investors, some of which you can find in the list above.

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The cheapest ETF trading platforms in the UK are XTB, InvestEngine, Vanguard, and Bestinvest. These platforms do not charge a fund dealing fee, so you only ever pay the platform fee and fund manager costs. Other fees may apply.

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Yes, you can invest in only ETFs. However, most investment platforms or trading apps will allow you to invest directly in stocks alongside ETFs if you want to. This means you can have a portfolio that is only ETFs or a mix of ETFs and individual company shares.

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Yes, ETFs are an excellent way for beginners to invest. They provide access to professional investment managers at a very reasonable cost and allow for much greater levels of diversification, even with small amounts of money.

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You can start with as little as one ETF, as some of them invest all across the world and in a range of different asset classes. These are known as Multi-Asset or Global ETFs and are based on the level of risk you want to take with your money, from low to moderate to high.

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Yes, some ETFs pay dividends. ETFs usually offer an Accumulation or Income version of the fund. Both will receive dividends from the companies they hold, but only the Income version of the ETF will automatically pay these out to investors. The Accumulation version will instead automatically reinvest the dividends into the portfolio. This reinvestment strategy is great for long-term gains as it increases the size of your portfolio and you enjoy the benefits of compound interest. If you want to receive dividends from your ETFs, you should buy UK ETFs of the Income class.

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Here are the best ETF brokers in the UK:

1. XTB - 0% Commission on real stocks and ETFs; 5,600+ Instruments
2. Interactive Investor - One free trade per month; 40,000+ Instruments
3. InvestEngine - Low cost; 500+ Commission-free ETFs
4. AJ Bell - Mid-price range; 3,000+ ETFs
5. eToro - 0% Commission on real stocks; 250+ ETF CFDs
6. Lightyear - Low cost; Multi-currency accounts; 3,500+ Instruments
7. Freetrade - Low cost; 250+ Commission-free ETFs
8. Bestinvest - Low cost; Lots of research; 3,000+ Instruments
9. Hargreaves Lansdown - Lots of research; 15,000+ Instruments
10. Vanguard - Low cost; 70+ Funds

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Generally speaking, ETFs are safer than stocks. ETFs will almost always mean greater diversification for an investor. This means your money is spread further, which reduces the chance of a small number of bad apples ruining an entire portfolio.

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The main downside of investing in ETFs is that there is an ongoing fee in addition to the ETF platform charge payable to invest in them. Additionally, the price of ETFs, like any other investment, can fluctuate over time, and you could get less than you initially invested.

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You can buy ETFs as often as you like. Most people buy ETFs once a month, immediately after receiving their salary. This is a common ETF investing strategy known as “pound-cost averaging” or “dollar-cost averaging”. It is when an investor invests small amounts of money at regular intervals (e.g. monthly or biweekly) regardless of the price of the ETF at that time. This helps to average out the cost of buying the ETF over time and reduces the risk of investing a large sum at a high price.
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The best ETF trading platforms in the UK will allow you to set up a direct debit or standing order to automatically buy a set amount of an ETF every month or as frequently as you can afford to. With pound-cost averaging, you automatically “buy the dip” when markets crash and can smooth out long-term returns.

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Here’s an example:

Say an investor wants to invest £10,000 in an ETF. Instead of investing all £10,000 at once, they decide to invest £1,000 every month for 10 months. If the stock price is £100 in month 1, £120 in month 2, £90 in month 3, and so on, the average cost of buying the stock will be lower compared to if they had invested all £10,000 at once when the price was £100.

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An ETF’s expense ratio is another name for the fees charged by an ETF fund manager. The figure is expressed as a percentage of an investor’s daily average balance, and can range from 0.04% to over 2.00%.

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