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Best Online Brokers for UK Index Funds

Updated On: Jan 28, 2023
best online broker uk index funds

Contents:

Best Online Brokers for UK Index Funds

We’ve compiled a list of some of the best online brokers for UK index funds. These are investment apps, companies, platforms, websites and fund supermarkets where you can buy, sell and hold UK index tracker funds, ETFs and other investment products.

Please remember that when you invest, your capital is at risk. ISA, pension and tax rules also apply.

Here are the best online brokers for UK index funds:

Interactive Investor - One free trade per month; 3,000+ funds

Interactive Investor
Account Type
DIY & Ready-made
Dealing Fee
£5.99
Annual Platform Fee
£120 - £240
Minimum Deposit
£25

Interactive Investor, recently acquired by wealth management giant abrdn, is the second-largest investment platform in the UK. Interactive Investor is well known for its fixed charges (as opposed to percentage-based fees like most other investment platforms), and it has been providing investment services and financial information since 1995. If you choose to invest with Interactive Investor, you’ll gain access to over 40,000 investment options, including UK and overseas shares, funds, investment trusts, and ETFs. This is the widest choice of UK and international investments offered by any investment platform in the UK. You will also be able to access 17 global exchanges, including exchanges in North America, Europe and Asia Pacific. These include markets such as the FTSE 100, FTSE 250, FTSE All-Share, NASDAQ, Dow Jones and more. In addition to the exchanges above, Interactive Investor offers Japanese, Indian and Chinese shares in the form of ADRs (American Depositary Receipts).

Interactive Investor gives you a free trade every month, which you can use to buy or sell any investment. After that, trades usually cost £5.99. Interactive Investor also offers a free regular investing service that allows you to invest regularly without paying a trading fee each time. The site also has lots of expert ideas, research and insights, which can be helpful when choosing investments. Interactive Investor’s services include a Trading Account, Stocks and Shares ISA, SIPP and Junior ISA.

Capital at risk.

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Bestinvest - Low cost; 2,500+ funds

Bestinvest logo
Account Type
DIY & Ready-made
Dealing Fee
£0 (Funds)
£4.95 (Shares)
Annual Platform Fee
0.4% - 0% (DIY)
0.2% - 0% (Ready-made)
Minimum Deposit
£0

Bestinvest is a UK investment platform offering about 2,500 funds, UK shares, investment trusts and ETFs. With Bestinvest, you can invest in one of two ways depending on your investing savviness: Beginner investors or those who prefer to choose a ready-made investment portfolio can build their investment pot by selecting one of Bestinvest’s ready-made investments. These investments are fully diversified and created and managed by the team at Bestinvest. Once you’ve picked one, you don’t need to do anything else. Advanced or more confident investors can choose from a wide range of funds, shares, ETFs and ITs and build their investment portfolios themselves. Bestinvest also has an investment search tool that makes it easy to browse and filter all of the investments, and you can use its free guides and articles if you need any inspiration

Bestinvest is quite popular for its Spot the Dog guide which shows a list of poorly performing funds you probably want to avoid. Bestinvest’s suite of products includes a Stocks and Shares ISA, General Investment Account and SIPP.

Capital at risk.

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AJ Bell - Mid-price range; 2,000+ funds

AJ Bell Logo
Account Type
DIY & Ready-made
Dealing Fee (Online)
£1.50 (Funds)
£9.95 - £4.95 (Shares)
Annual Platform Fee
0.25% - 0% (Funds)
0.25% (Shares - max £3.50/month)
Minimum Deposit
£500 lump sum
or £25 per month

AJ Bell is one of the UK’s largest online investment platforms, and it is on a mission to make investing as easy as possible for you. The platform offers a wide range of investment options for the DIY investor, including shares, funds, investment trusts and ETFs. Beginner investors or those who prefer to choose a ready-made investment portfolio can get a little, or a lot, of help from AJ Bell’s specialists by selecting one of the investment ideas on offer. There are eight total fund ideas, each built by a specialist team, and you can pick the right one for you depending on your attitude to risk and whether you’re seeking to simply grow your money over time or receive an income whilst still growing your money.

AJ Bell charges an annual platform fee ranging from 0.25% to 0%. Dealing fees for buying and selling investments online are £1.50 for funds and £9.95 for shares (reducing to £4.95 if there were 10 or more online share deals in the previous month). AJ Bell’s services include a Share Dealing Account, Stocks and Shares ISA, Lifetime ISA, Junior ISA, SIPP and Junior SIPP.

Capital at risk.

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Hargreaves Lansdown - Lots of investment options; 3,000+ funds

Hargreaves Lansdown
Account Type
DIY & Ready-made
Dealing Fee (Online)
£0 (Funds)
£11.95 - £5.95 (Shares)
Annual Platform Fee
0.45% - 0% (Funds)
0.45% (Shares - max £45/year)
Minimum Deposit
£100 lump sum or £25 per month

Kickstart your investing with an award-winning ISA. Hargreaves Lansdown is a FTSE 100 company and the biggest investment platform in the UK. Its core mission is to build long-term client relationships by becoming a trusted partner and financial champion, ultimately helping you increase your financial security for the future. If you choose to invest with Hargreaves Lansdown, you will gain access to over 2,500 funds, UK and overseas shares, ETFs, ETCs, investment trusts and more. With Hargreaves Lansdown, you can build your investment portfolio in one of two ways depending on your investing savviness: Beginner investors or those who prefer to choose a ready-made investment portfolio can build their portfolios by choosing from a range of ready-made options where the team of experts at Hargreaves Lansdown will take care of the day-to-day investment decisions for you. Advanced or more confident investors can choose from a wide range of funds, shares and other investments and build their portfolios themselves.

Hargreaves Lansdown does not charge a platform fee on its Fund and Share Account but charges 0.45% (capped at £45) a year on its ISA and 0.45% (capped at £200) a year on its SIPP. It offers most products, including a Fund and Share Account, Stocks and Shares ISA, Lifetime ISA, Junior ISA, and SIPP. These services are intended for investors who are happy making their own decisions.

Capital at risk. The fees quoted here are not exhaustive. Other charges apply.

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FinecoBank - Low cost; 750+ funds

FinecoBank Logo
Account Type
DIY & Ready-made
Dealing Fee
£0 (Funds)
£2.95 (Shares)
Annual Platform Fee
0.25% (Funds)
0.25% (Shares - max £2.95/month)
Minimum Deposit
£25

FinecoBank is one of Europe's largest banks, with 20 years of leadership history in brokerage and over 30 million orders processed every year. Its core mission is to make online trading simple by providing direct access to the markets in just one click. With Fineco, you can access 26 global markets and trade over 20,000 financial instruments worldwide on a single account, including UK and overseas shares, ETFs, funds, bonds, and CFDs. Users can also invest and trade directly in GBP, EUR, USD, Swiss Franc and 20+ currencies. FinecoBank's products include a Trading Account and Stocks and Shares ISA.

Promo: Apply with the link below by the 30th of June 2023, and trade commission-free up to a maximum commission amount of £500. Terms apply.

Please note: When you invest, your capital is at risk. 71.97% of retail investors lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and can afford to take the high risk of losing your money.

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Vanguard - Low cost; 70+ funds

Vanguard Investor'
Account Type
DIY & Ready-made
Dealing Fee
£0
Annual Platform Fee
0.15% (max £375)
Minimum Deposit
£500 lump sum
or £100 per month

Vanguard is a low-cost investment platform with over 75 own-brand funds, including ETFs, active funds and index funds. Vanguard does not offer stocks and shares, but there are various ETFs on offer for those interested in exchange-traded securities. The Vanguard Stocks and Shares ISA allows you to build an investment portfolio in two ways depending on your investing savviness: beginner investors or those who prefer to choose a ready-made investment portfolio can build their portfolio by selecting one of Vanguard’s ready-made portfolios, which give you access to thousands of bonds and shares in a single investment. Advanced or more confident investors can choose from over 75 individual Vanguard funds and ETFs and build their portfolios themselves.

To open a Vanguard Stocks and Shares ISA, you need at least £100 per month or a lump sum of £500. There is a yearly management fee of 0.15% (capped at £375) per year. Some of the funds on offer have separate charges, so please check these before investing. Vanguard’s suite of products includes a Stocks and Shares ISA, Junior ISA, General Account and SIPP.

Capital at risk.

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What Is an Index Fund?

An index fund is a broad portfolio of stocks or bonds in publicly listed companies that track the performance of a market index. Index funds do not look to beat the performance of an index, instead, they aim to match it.

The fund managers who create index funds buy shares in every company listed on an index with the goal of performing exactly as the index does. The opposite of index fund managers is active fund managers who pick “the best” shares or bonds with the goal of outperforming the market and delivering outsized returns to their clients. Most of them never do.

An index is a list of shares, bonds and other assets in any given market. You may have heard of the FTSE 100 index. It is an index of the 100 largest companies on the London Stock Exchange. For example, an index fund tracking the FTSE 100 index will buy shares in all the companies listed on the index. If you choose to invest in a FTSE 100 index fund, you will be investing in the 100 companies with the highest market capitalisation on the London Stock Exchange.

Similarly, if you buy a FTSE All Share index fund, you will be investing in all the companies listed on the London Stock Exchange that pass the screening for size and liquidity.

Most people invest a portion of their long-term or retirement savings into passive index funds because they are less volatile than their active counterparts. Passive funds tend to deliver healthy returns over a long-term period, but they never outperform or underperform the market as active funds do.

There have been many instances of famous, successful investors, including Warren Buffet, advising everyday investors to invest in index funds instead of picking individual stocks and trying to time the market. Some of these famous investors have even gone as far as saying, “the single best choice for a lifelong holding is a total stock-market index fund.”

Here are a few quotes from seasoned investors and other members of the finance industry on why index funds might be the right investment strategy for you.


ETF vs Index Fund

An ETF is an active or passive fund that can be traded (bought and sold) throughout the day on a stock exchange, like a share, whereas an index fund is a passive fund that can only be traded at a set price at the end of the trading day.

Both index funds and ETFs give investors access to a broad and diversified investment portfolio. However, ETFs are more suitable for investors who want flexibility since they trade like shares on stock exchanges, and anyone can easily buy and sell them at any time during trading hours.

When investing in index funds and ETFs, you have the option to choose a fund of either the “Income” or “Accumulation” class.

If you choose Income, you will receive regular dividend payments into your account. These dividend payments come from the companies the fund invests in.

If you choose Accumulation, the dividends from the companies the fund invests in will be automatically reinvested into your portfolio, increasing the total value of your investments and, by extension, the price of each unit of the fund.

Most people investing to grow their money in the long term usually buy index funds of the Accumulation class. Investing this way helps them reap the benefits of compound interest.


How to Build an Index Fund Portfolio

There are two ways to build an index fund portfolio. The first is by creating your own version of Bogleheads’ three-fund portfolio, and the second is by simply investing in an index fund that tracks the whole world.

1. Three-Fund Portfolio

A three-fund portfolio is a simple passive investing strategy that involves investing in three types of index funds or ETFs with a long-term horizon of at least 20 years.

The three funds are typically:

  1. A domestic stock “total market” index fund,
  2. An international stock “total market” index fund, and 
  3. A bond “total market” index fund.

Here is an example of how this could look in practice:

Fund 1 could be an index fund or ETF that tracks the local UK market, i.e. a fund that tracks the FTSE UK All Share Index.

Fund 2 could be an index fund or ETF that tracks the global (developed world + emerging market) or US “total” stock markets. For example, a fund tracking the S&P 500 Index.

Fund 3 could be an index fund or ETF that tracks the performance of UK government bond indices such as the Bloomberg UK Government Inflation-Linked Float Adjusted Bond Index. 

Here is a list of some of the best index funds and ETFs in the UK.

Once you’ve chosen your index funds or ETFs, you have to adjust the allocation of each fund based on your risk tolerance. For instance, a risk-averse investor might hold a portfolio heavily tilted toward bonds. Similarly, someone bullish on the US or an emerging market like China might hold a portfolio that disproportionately favours a US or global index fund. Finally, if you would like a great deal of “home stocks” in your portfolio, you might allocate the largest portion of your portfolio to the UK index fund.

Other factors to consider when building an index fund portfolio include your current age and how long you plan to hold the index funds. You should also consider the previous performance of each index fund while keeping in mind that past performance is not a reliable indicator of future results.

The Bogleheads’ three-fund portfolio was originally created by Bogleheads in America.

2. Global or “Whole World” Index Fund Portfolio

If you are the kind of investor who would prefer a single index fund to set and forget rather than invest in multiple funds, a global index tracker might be a good choice for you.

Global index tracker funds track the performance of companies worldwide, ranging from developed countries to emerging markets.

When you buy an index fund that tracks a global market, you gain exposure to companies in the US, the UK, other developed countries, and even emerging markets like Latin American countries. Global index trackers are an excellent choice for people who want a highly diversified portfolio without limiting themselves to the domestic and US markets.

We’ve put together a list of some of the best global index tracker funds and ETFs, available via the best online brokers for UK index funds.


How to Invest in Index Funds in the UK

To invest in index funds in the UK, you need to open an investment account with a fund supermarket such as Interactive Investor, AJ Bell, Hargreaves Lansdown, or Vanguard.

Follow the steps below to invest in index funds in the UK:

  1. Open an Account With a Fund Supermarket: A fund supermarket allows you to buy, sell and hold index funds, active funds, ETFs, and other kinds of investments, including stocks and shares, bonds and commodities. Not all investment platforms in the UK allow retail investors to buy funds, but all fund supermarkets do.
  2. Verify Your Details and Fund Your Account: Depending on the platform you choose, you might need to submit your national insurance number or upload a copy of a valid ID card to create your account. Once your account is created, you need to add funds to it. You can only buy index funds in the local currency, GBP, so you need not worry about exchange rates or the associated fees. 
  3. Choose a Tax Wrapper: A tax wrapper reduces the taxes you pay on your savings and investments. Examples of tax wrappers in the UK are individual savings accounts (ISAs) and pensions. If you do not want to use a tax wrapper, perhaps because you have already used up your ISA allowance for the tax year, you can choose to invest in a general investment account (GIA). A GIA also comes with some tax benefits.
  4. Research Index Funds and ETFs: Before investing in any stock market product, it is crucial to carry out some research. For investors of all levels, we have put together two guides to help speed up your research process: Best UK Index Funds and Best UK ETFs.
  5. Create an Investment Strategy: To become a successful investor, you must create an investment strategy that works for you. Most people create their own version of Bogleheads’ three-fund portfolio, while others simply invest in one index fund that tracks the whole world. You also need to consider the duration of your investment, your current age and risk tolerance.
  6. Choose Your Index Funds: When you are ready to invest, you need to choose your index funds or ETFs. Enter the name of the index fund or the ticker symbol of the ETF into the search bar of your preferred fund supermarket’s desktop or mobile app. Once you locate the fund, you may buy as many units as you want.
  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 it can sometimes be better than investing a huge lump sum once. This investment strategy is often called dollar-cost averaging or pound-cost averaging.
  8. Monitor Your Portfolio: Once you find your rhythm, remember to keep an eye on your investments and rebalance your portfolio when necessary.

Index Fund Fees

We’ve outlined some typical index fund fees below. You can always find the full details of an index fund’s charges in its Key Investor Information Document (KIID).

Pro Tip: Fixed fees tend to work out cheaper for people investing high amounts, whereas percentage-based fees tend to be less expensive for those with little to invest.

Here is a breakdown of the fees you pay when investing in index funds in the UK:

  1. Annual Fund Management Fee: The fund management fee, also known as an ongoing charges figure (OCF) or total expense ratio (TER), is the fee paid directly to the index fund manager responsible for managing your fund. When you invest in funds, you typically select a few funds to invest in. If you selected three different funds, for example, you would have to pay a fund management fee for each fund.

  1. Annual Platform Fee: The platform fee, also known as a custody fee, is charged by the investment provider or fund supermarket providing a platform for you to invest. It is usually expressed as a percentage of the total value of your portfolio or a fixed fee.

  1. ‍Market Spread: The market spread, also known as transaction cost, is the difference between the buy and sell prices of an asset like an ETF.

  1. Trading Fee: The trading fee, also known as a dealing fee, is the fee for buying and selling funds, shares or other types of investments. Most platforms do not charge a dealing fee for buying and selling index funds, but the ones that do usually charge an amount ranging from £0.01 to £25.‍‍

  1. Transfer-Out Fee: The transfer-out fee, also known as an exit fee, is the fee you pay for moving your investments from one fund provider to another. Not all platforms charge an exit fee, but those that do typically charge per fund or holding.

  1. ‍‍Advice Fee: A financial advice fee is only paid if you opt-in for financial advice.

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