Always remember that investments can go down as well as up in value, so you could get back less than you put in. A rule of thumb is to hang on to your investments for at least five years to give them the best chance of providing the returns you want.
We’ve compiled a list of the best platforms for index funds in the UK. These are the best index fund brokers, investment apps, 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. All the platforms listed below are authorised and regulated by the UK’s financial watchdog, the Financial Conduct Authority (FCA)
Here are the best platforms for index funds in the UK:
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 second-widest choice of UK and international investments offered by an 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.
Bestinvest is a UK low-cost investment platform that allows you to trade or invest in over 3,000 instruments, including shares, funds, ETFs, and investment trusts. With Bestinvest, you can build an investment portfolio in two ways depending on your personal preferences, goals and attitude to risk.
Beginners or those who prefer a ready-made investment can build their portfolio by selecting one of Bestinvest’s ready-made investment portfolios. These off-the-shelf style portfolios are created and managed by the team at Bestinvest and come with a carefully selected and diversified collection of investments. Once you have picked one, you do not need to do anything else. There are three ranges to choose from: Expert, Smart and Direct, depending on whether you want to maximise the returns for the risk you take, focus on cost-efficiency or focus on individual investments. The team at Bestinvest will walk you through the process of selecting a ready-made portfolio. Advanced or more confident investors can choose from a wide range of funds, shares, ETFs and ITs and build their portfolios themselves.
To start building your portfolio with Bestinvest, you can deposit a lump sum or set up a monthly savings plan which allows you to automatically save or invest a set amount into your investment account every month. There are no set-up fees or fund dealing charges with Bestinvest. Bestinvest charges an annual platform fee ranging from 0.40% to 0% for DIY investing and 0.20% to 0% for ready-made investing. The dealing fee for buying and selling shares online is £4.95 per deal. Bestinvest’s suite of products includes a Stocks and Shares ISA, Junior Stocks and Shares ISA, General Investment Account, SIPP and Junior SIPP.
Capital at risk.
AJ Bell is one of the UK’s largest online investment platforms, and its mission is to make investing as easy as possible for anyone. The platform offers thousands of investment options for the DIY investor, including shares, funds, bonds, investment trusts, ETFs, ETCs, and warrants.
There are multiple ways to get started with AJ Bell, depending on your risk tolerance and investing savviness. 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. Investment ideas are diversified ready-made baskets of investments that you can select based on your personal preference and attitude to risk. There are eight total investment ideas, each built by a specialist team, and you can pick the right one for you depending on whether you are seeking to simply grow your money over time or receive an income whilst still growing your money. Expert investors can take advantage of the stock and fund screeners and complex instruments available on AJ Bell and build their portfolios themselves.
AJ Bell charges an annual platform fee ranging from 0.25% to 0% depending on the size of your portfolio. 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 products include a Share Dealing Account, Stocks and Shares ISA, Junior Stocks and Shares ISA, Lifetime ISA, SIPP and Junior SIPP.
Capital at risk.
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.
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. 68.01% 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.
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.
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.
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.
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.
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:
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.
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.
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:
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:
Yes, depending on how your investments perform, you might be liable to pay both Capital Gains and Income Tax when you invest in index funds in the UK.
You pay Capital Gains Tax on the profits from selling your index funds in the UK over the Capital Gains tax-free allowance. This tax year, the Capital Gains tax-free allowance is £12,300 (£6,150 for trusts). This means you will not have to pay tax on the first £12,300 profit you make from selling your index funds, except if you’ve already used up your tax-free allowance elsewhere.
You might also be liable to pay Income Tax on the dividends from your index funds.
To avoid paying taxes on your index funds, use a tax wrapper such as a Stocks and Shares ISA or Pension.
Here are the best online brokers for UK index funds:
To set up an index fund in the UK, you need to:
You can buy an S&P 500 index fund in the UK from investment platforms such as Interactive Investor, AJ Bell, and Vanguard. The UK version of the S&P 500 index fund is not very common, so most platforms only offer the UBS S&P 500 Index Fund (Income or Accumulation). However, you can find many variations of the UK S&P 500 index fund as ETFs.
To invest in the FTSE 100 index fund in the UK, you need to open an investment account with an investment platform or fund supermarket such as Interactive Investor, AJ Bell, or Hargreaves Lansdown. Once your account is open and funded, you can search for the FTSE 100 index fund and choose to invest in either the Income or Accumulation class, depending on whether you want to receive the dividends from your investments or reinvest them to take advantage of compound interest.
There are many versions of the FTSE 100 index fund, and the one you pick will depend on what is available on the investment platform or fund supermarket you choose. For example, If you choose to open an account with Vanguard, you will only be able to buy the Vanguard FTSE 100 Index Unit Trust since that is the only FTSE 100 index fund available on Vanguard.
Yes, you can open an investment account and invest in index funds online. Most investment platforms and fund supermarkets are online, and you can easily create and manage your index fund portfolios on their desktop, iOS or Android app.
Every month, we’ll send you The Plug - a curation of the best personal finance content in the UK. We share real-life stories, how-to guides, top personal finance news, popular community questions, and tips to help you stay on top of your money.