Find the best ISA fund supermarket for you

Did you open an ISA with your bank?

Did you pay a 5% upfront fee to open a stocks & shares ISA?

I'll let you into a secret. I pay no upfront fees when I invest in a stocks & shares ISA.

I pay no annual charge for my ISA's unit trust holdings!

All the dividends I get from my ISAs go straight into my bank account and not into the pocket of some financial advisor or high street bank.

The table below shows how an initial investment of £5000 grows at an interest rate of 5% or 6% over 5 years (assuming compound interest).

After 5 years at 6% interest, the initial investment is worth 4.8% more than the investment that grew at 5%. Clearly then it is vital to ensure that investments are held within unit trusts with the lowest possible fees.

If there was an initial charge for the investment, the difference would be even greater!

If you go to a financial advisor or bank for your stocks & shares ISAs, the chances are there is usually a very limited choice of funds that you are able to invest in. In some cases there may only be funds from one or two different providers. Furthermore, these funds might have high charges. A bigger danger is that they may be among the worst performing funds in their sector!

Fund supermarkets have hundreds, if not thousands of different investment choices available. While most investors are wise to play it safe with equity income funds and corporate/government bond funds, many like to spread their money into different markets such as emerging markets like Russia and commodities such as investment gold. There are even a few new funds available which allow investors to diversify into currency holdings.

Hargreaves Lansdown are a respected discount broker and fund supermarket. They have a massive selection of unit trusts available from a wide range of fund managers. In many cases they refund the entire annual charge levied by the fund manager. Hargreaves Landsdown also have UK based telephone support staff, and offer additional services such as investment advice. Hargreaves Lansdown allow funds to be invested in though a stocks & shares ISA, a Self Invested Personal Pension (SIPP) or a standard unit trust account.

Fidelity's Fund Supermarket was amongst the first online fund supermarket and is still popular today. It offers a range of over 1000 funds from many different fund managers.

SelfTrade offer a wide range of investment funds though an online ISA as well as share dealing and other services. This offering will appeal to more sophisticated investors due to the number of trading tools available and the other financial market features such as CFDs and Spread Betting.

The Motley Fool share dealing service is another alternative. The Fool offers a standard trading account as well as an ISA, SIPP and regular investment option. iii's UK financial website also has a wide range of services including share dealing, ISAs and SIPPs.

The downside to fund supermarkets is the vast amount of choice available for investment money. Funds usually have an annual charge, but the fund supermarkets will tend to refund some or all of this charge for their funds. Each fund will have a different annual charge. Some levy performance and other charges. Always check the fund's charges before investing! A good way of comparing funds is to check their Total Expense Ratio (TER). This ratio shows the percentage charged for holding a fund each year. Knowing the TER is particularly useful for when comparing investments in the same fund sector. Subtracting the fund's TER from it's projected yield gives a good guide to what the likely yield for the fund will be after charges are subtracted.

In general I am wary of investing in a unit trust if the annual charge is greater than 1.5%. I don't mind performance fees, as long as they are clearly stated.

Some unit trusts such as those from Vanguard and HSBC have very low annual charges - sometimes as low as 0.2%. While this may look attractive, it's worth bearing in mind that some fund supermarkets may make an additional charge (e.g. 0.5%) to hold these unit trusts.

• High yielding investments that may be held within an ISA.
  

The author of this article is not authorised by the UK authorities to give financial advice. This article does not consitute financial advice. Before making investment decisions consult an independent financial advisor.