The Top 5 Best UK Investing Platforms For Passive Index Fund Investing

Choosing between investing platforms is one of the first big steps when it comes to beginning to invest your money. In the UK, there are many excellent investing platforms for passive fund investing which is the investing strategy I personally pursue and the strategy that is typically advised for new investors.

Vanguard Investor, Hargreaves Lansdown, Charles Stanley Direct, AJ Bell Youinvest and Interactive Investor are all good, reliable choices for passive index fund investing in the UK. Each platform will allow you to invest in a variety of funds that are suitable for your individual preferences.

Of the above shortlist of five investing platforms I’ve put together, I’ve personally used all of them in the past with the exception of Interactive Investor which has been highly recommended to me by a number of people. The truth is, if you pick any one of these five platforms and invest consistently, you’re highly likely to be successful in your investing goals in the long run but that shouldn’t stop us from taking the time to pick the one that is best suited to each of our individual preferences and tolerance for risk. So, let’s get started.

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What are the 5 best investing platforms for passive investing?

For the purpose of this post, I will be taking a look at the following five investment platforms in the UK, each of which is highly regarded, secure, widely used and offers reasonably priced funds to choose from.

All five of these platforms are good choices as your provider of choice to pursue a passive investing strategy. There are a number of other great UK investing platforms out there, but these are five of the most common and highly rated and which I am in a position to fairly judge having used the first four and extensively researched the fifth.

For full disclosure, I have invested in stocks & shares ISAs with Vanguard UK, Charles Stanley Direct and Hargreaves Lansdown in the past and have recently set up a LISA (which I wrote about in detail here) with AJ Bell Youinvest. I am yet to use Interactive Investor but have researched it for the purpose of this post.

I wrote a separate post on Vanguard Investor UK previously which can be found here. If you end up investing with Vanguard Investor UK, I would highly recommend reading the linked post before getting started which will walk you through the necessary steps and highlight all of the things you should have considered prior to investing.

It should also be noted that I don’t think any single one of these five choices is a clear choice. The best platform for you will be the one you feel most comfortable using and which best aligns with your investing goals.

I will, however, share which is the objectively cheapest in terms of both platform and fund fees of these five platforms as well as provide my opinion on other factors which should be considered.

Why passive index fund investing is a good strategy to follow

Passive index fund investing is an investment strategy whereby you invest in investment funds (a product which purchases numerous securities such as company shares or bonds) which track against a predetermined index such as the S&P 500 or the FTSE 100. This strategy is deemed passive as all you need to do is periodically contribute money to this fund and leave it for the long term to grow. An active investment strategy, by comparison, would be where you are paying higher fees for a fund manager to attempt to beat the market or the chosen benchmark.

A passive fund doesn’t need to beat the market, but rather, tracks it as accurately as possible safe in the knowledge that the chosen index has historically risen over time. For example, the S&P 500 index has increased by 9.8% per year on average since 1927 (check the yearly stats here)

Most investors, even professionals with years of experience and fancy qualifications, struggle to beat the market consistently. This FT article reports that “83% of active funds in the US fail to match their chosen benchmark”. So if only 17% of professional fund managers fail to beat their benchmark, what chance does a non-professional like you or I have?

Warren Buffett, CEO of Berkshire Hathaway, bet a group of hedge fund managers $1 million that they would fail to beat a low-cost index-tracking fund over 10 years. He won this bet and when you see how much hedge funds charge their investors (2% of assets under management + 20% of profits is common) you can see how ridiculous this starts to look when stacked up against low-cost funds which charge just 0.10% of invested assets.

It should be noted, that most actively managed funds are not hedge funds which are reserved for those willing to invest significant sums of money and willing to take on more risk.

The bottom line is this, unless you have a unique insight into the stock market or you’re simply overconfident in your investing abilities, in almost all cases, you’d be better off investing in a low-cost, passive fund which tracks an index such as the S&P 500 rather than trying to pick your own individual stocks.

The next question is; how do we get started with investing in these index-tracking funds?

What makes an investing platform a good choice?

Once you’ve decided on a long-term, passive investing strategy, the next thing to do is to decide on an investing platform that is best suited to your strategy. There are a few things you want to be thinking about here:

Fees

The first thing you want to consider is fees and this falls into two categories;

A) the platform fee which is a sum of money that you pay to the platform provider to use their services. (usually, a % of total invested money but can be a fixed per trade amount)

B) the fund fee – this is a fee you pay to the organisation that manages the fund you are invested in. Let’s say for example you signed up to the Hargreaves Lansdown investment platform and then invested your money into Fidelities global index tracker (which tracks the entire stock market). As well as the fund fee which you would pay to Hargreaves Lansdown, you would pay a fund fee to Fidelity. For a passive investing strategy, this can be as low as 0.04% of the total funds you have invested (i.e. £4 on a £10,000 investment) but tend to be in the region of 0.10%-0.25% (£10-25 on a £10,000 investment).

Clearly, the best thing for the value of your investments is to minimise the level you pay in fees. Some investors may believe the maxim “you get what you pay for” but when it comes to passive investing, all the fund is doing is investing into securities to match an index so there is not too much variability in terms of quality here.

When you select a fund, you want to make sure it accurately tracks the benchmark. You can usually do this by downloading the PDF ‘fund factsheet’ which should show annual performance vs the benchmark (i.e. FTSE100). You would expect to see the performance of the fund and the performance of the benchmark to be pretty much aligned. Small differences are expected simply because the fund will purchase securities representative of the overall index but not exactly what the index holds.

You want to strike the best possible balance between low fees and the following factors described below.

Security

When deciding on an investment platform, the last thing you want is to sign-up and then realise the platform you have decided on is not secure. To avoid this, make sure the investment platform you use is operated by a reputable company with mainstream media coverage and covered by the Financial Services Compensation Scheme (more on this below).

If you go to an investment platform website and find yourself unconvinced by it, turn back and sign up to a reputable site. All five of the platforms discussed in this post are reputable and Vanguard and Hargreaves Lansdown, in particular, are household names in investing.

Ease of use of the website/app

Another consideration is the ease of use of the desktop website and the App (if they have one) – it will do you no favours signing up to an investing platform that you can’t navigate around. In fact, this could have serious consequences if you invest in something you didn’t mean to or sell an investment when you meant to hold it.

In terms of simplicity, Vanguard Investor UK leads the pack from my perspective. The website design is very minimalistic and easy to navigate. However, Vanguard doesn’t currently offer an App which some investors may find frustrating.

Charles Stanley Direct offer a very functional app which is actually better to use than their website.

The variety and quality of the funds offered

Before signing up for an investment platform, you will need to make sure it offers the funds that you are interested in. I would advise doing your own research and getting a full understanding of your own risk tolerance and personal preferences before deciding on an index you want to track. For many people, this may be a global all-cap or an S&P 500 tracker.

Most good investment platforms will offer a variety of good options to track your chosen index(s) and all five of those mentioned in this post will offer good, low-fee funds for all of the key benchmarks out there.

It’s worth mentioning, that the Vanguard Investor UK platform only offers Vanguard funds such as the popular Vanguard LifeStrategy range. Whilst this still provides a good breadth of investment funds to choose from, it does prevent you from investing in a Fidelity or Blackrock product that you may like for example.

Automation including dividend reinvestment

As explained in my recent post on ‘using compound interest to get rich‘ in order to take advantage of compounding within your investment portfolio, you will want to reinvest all of your dividend income back into more units of the funds you are investing in into.

To maximise the efficiency of this, you will want to select both a platform and fund that make this process automatic. I.e. in an ideal world, you would tick a box to state that you want automatic reinvestment of dividends straight back into the fund and that would be the end of it. However, some funds only allow you to receive income directly into your investment account which you would then have to manually reinvest.

Vanguard Investor

Let’s start with Vanguard Investor. As of this tax year, I have been testing out this investment platform. I had heard about the very low fees and a host of positive reviews from around the Financial Independence, Retire Early (FIRE) community and had to try it out for myself.

For more info on Vanguard Investor UK, please read my recent article ‘Start investing into an ISA in the UK with Vanguard: A how-to guide‘ which gives all of the necessary information on this platform and provides the practical steps needed to set up an account.

Vanguard Investor UK can boast exceptionally low platform fees at 0.15% of assets capped at £375 for portfolios over £250,000 in total. This equates to a £15 fee for every £10,000 you have invested with the platform which is very reasonable.

The cheapest available fund on Vanguard is 0.06% of assets which is available on ‘FTSE U.K. All Share Index Unit Trust‘. This brings total fees to 0.21% of assets or £21 for every £10,000 invested.

As mentioned above, the Vanguard Investor UK website is very simple to sign-up too and operate. Setting up monthly direct debits and automated monthly purchasing instructions is a walk in the park.

The two minor downsides to this platform are:

a) The platform does not currently offer an App. For me, it would be nice to check on my investments on my phone but this may actually be a blessing in disguise as it means I look at my investments less often and can truly stick to a passive strategy of investing each month and leaving them for the long-term.

b) You can only invest in Vanguard products. On other fund providers, you can invest in 3rd party products. For example, I used to use Charles Stanley Direct as my platform which allowed me to invest in a Blackrock mutual fund. However, with Vanguard, I wouldn’t be able to invest in this fund even if it was a personal favourite of mine. Having said that, due to the wide array of strong, low-cost funds offered by Vanguard, this is not a particularly big issue.

Since joining, I have also felt more at ease investing in a platform with a globally recognised brand propping it up.

Hargreaves Lansdown

The second platform to be discussed is Hargreaves Lansdown, another significant organisation and a constituent of the FTSE 100. I have used Hargreaves Lansdown in the past and if I were to summarise it in a single sentence, it would be this: an absolutely amazing platform with high fees to match.

I don’t want to give the wrong impression, Hargreaves Lansdown isn’t ridiculously expensive with platform fees at 0.45% of assets or £45 on every £10,000 invested. This is still a fairly reasonable amount for the high-quality platform you get in return but at 3* the cost of Vanguard Investor, it is noticeably more expensive. This drops to 0.25% over £250,000 of total assets invested and 0.1% for over £1m which brings me on nicely to my next point.

For significant, high-value portfolios, Hargreaves Lansdown is an excellent choice. Not only do the fees become more reasonable as the value of your portfolio increases, but the rest of the platform is also incredibly well done. The customer service, research portal and ease when it comes to depositing and investing are all top-class.

The whole Hargreaves Lansdown platform screams classy and premium and for many people, this is worth the extra platform fees. Similarly to Vanguard, you can find very low-cost ETF and mutual funds (over 2,500 to choose from) to begin passively investing such as this 0.10% US equity tracker.

The final point is, unlike Vanguard, Hargreaves Lansdown offers a truly beautiful app which makes checking your investments a breeze.

Charles Stanley Direct

Charles Stanley Direct is the first-ever company I opened up an investment account with and for that reason, the company will always hold special significance for me as this website is what guided me through my first foray into investing.

The umbrella company which owns this platform has a total of £25 billion assets under management as compared with the larger £86 billion assets under management of Hargreaves Lansdown.

Much like Hargreaves Lansdown, Charles Stanley Direct offers a shifting fee scale which is:

Up to £250,000: 0.35%

£250k – £500k – 0.20%

£500k – £1m – 0.15%

£1m – £2m – 0.10%

Over £2m – 0%.

As you can see, Charles Stanley’s base price of 0.35% of assets is cheaper than Hargreaves Lansdown (0.45%) but more expensive than Vanguard Investor (0.15%).

I think of Charles Stanley as the younger brother of Hargreaves Lansdown insomuch as it does have a great, professional website and App but neither are quite as premium-feeling as Hargreaves Lansdown which if reflected in the cheaper overall cost.

You can invest in a cheap Fidelity US index tracker for 0.08% fund fees which are again, very reasonable and shows that the platform enables low-cost index-fund investing.

Overall, Charles Stanley Direct is a very solid investment platform with a reasonable platform fee and a huge choice of index funds to invest in. The website and app are high quality but in my opinion, slightly less easy to use than either the Vanguard or Hargreaves Lansdown equivalents.

AJ Bell YouInvest

AJ Bell is another significant UK investing platform with close to £50 billion in assets under management. As with the previous platforms reviewed AJ Bell offers stocks and shares ISA which for most of us is the optimum choice of the tax-advantaged wrapper to invest from.

I personally use AJ Bell for their LISA offering, a product which can be used for saving for your first home in the UK or for retirement (read more about LISA’s in my recent post here).

AJ Bell again uses a sliding scale to determine the fund fee with the base level up to £250,000 invested being priced at 0.25% of assets invested which makes it the second cheapest of the funds reviewed in this post.

AJ Bell offers around 2,000 funds to invest in with an example being this UK equity tracking fund with a 0.10% fund fee. AJ Bell also has a nice service which allows you to input your investing goals (growth or income), your tolerance for risk (sliding scale) and a few other details and recommends a specific AJ Bell fund. Whilst these are more personal they often cost a bit more with 0.35% fees being common.

AJ Bell is a hugely popular choice for Lifetime ISA’s and is generally considered to be the best value stocks and shares LISA on the market.

Interactive Investor

Our final contender in the competition for the best UK passive investing platform is Interactive Investor. I must admit, I have not yet used this platform but I have thoroughly researched it for this post. The reason I have included this platform is that it’s slightly different from the other four platforms reviewed above as the fees work in a slightly different way.

Similar to the other platforms reviewed, Interactive Investor is a substantial organisation with £36 billion in assets under management.

The difference lies in the fact that Interactive Investor doesn’t use the % of assets under management fee structure common with investment platforms but rather offers various different flat-free pricing models including:

Investor plan – £9.99 per month, £7.99 per trade.
Funds fan plan – £13.99 per month, £7.99 per trade.
Super investor plan – £19.99 per month, £3.99 per trade.

Whilst this will be more expensive than the other funds for those of us who set up a monthly direct debit in order to invest monthly, it does have huge benefits for frequent traders and high-value portfolios which means if you have a portfolio of over £100k, this platform is catapulted to the top of the list for cheapest in class.

For example, if you are on the investor plan at £9.99 per month + £7.99 per trade and invest £100,000 in one go at the start of the year, your total annual fees would be £127.87 (£9.99 * 12 months + £7.99) which on a £100,000 portfolio works out at 0.128% of invested assets which is even cheaper than Vanguard.

Clearly, this is not a typical investment strategy and in most situations, Vanguard would still come out on top but this platform is at least worth considering, particularly if you have a high-value portfolio.

The Interactive Investor website also claims that you could save more than £30,000 in flat fees compared to percentage-based fees over the course of 30 years when compared with the % fees of Hargreaves Lansdown. Again, I imagine this is in a very specific investing scenario and I couldn’t find the data to support this claim on the Interactive Investor website.

Whilst the Interactive Investment platform is more than capable of providing you with a solid base to invest from, the research I have conducted has suggested that the website isn’t quite as polished and intuitive as some of the competition listed above.

Is my money safe with these five platforms?

Yes, your money is very safe with these providers, particularly the well-established companies like Vanguard and Hargreaves Lansdown.

In all five cases, in the unlikely event that any of these platform companies go into administration, investors can claim £85,000 from the Financial Services Compensation Scheme (FSCS). All five of the above platforms; Vanguard, Hargreaves Lansdown, Charles Stanley Direct, AJ Bell Youinvest and Interactive Investor are all covered by this scheme so if you have a portfolio with these companies that is less than £85,000, you don’t have too much to worry about.

If you have a portfolio in excess of £85,000, my personal preference would be to leave my money in the hands of a well-established institution like Vanguard and Hargreaves Lansdown. Both of these are significant companies with giant cash reserves and feel similar to the big banks in the country in that they are almost too big to fail.

As long as you choose to invest your money with a reputable platform, you should have very little to worry about and all five of the options discussed above are highly reputable. So much so, that I have invested with four of the five in the past and would be happy to invest money with the only one I am yet to try in the future; Interactive Investor.

Having said that, I am not an investment advisor and have no inside knowledge of these companies, so before investing money with them, please perform your own due diligence and understand you invest at your own risk.

Conclusion

Investing is a crucial step in becoming financially independent and growing your wealth over time. The research suggests that very few professional active fund managers are able to reliably beat the benchmark they are up against, so for personal investors such as you and I, the best course of action is often to invest in low-cost, passive index funds which will grow via compounding over time.

The five UK investing platforms I have looked at in this article are Vanguard Investor UK, Hargreaves Lansdown, Charles Stanley Direct, AJ Bell Youinvest and Interactive Investor. All five of these platforms are run by reputable companies and are covered by the Financial Services Compensation Scheme.

If you invest consistently with any of the first four platforms (and all five for larger portfolios) by investing the difference between your income and your expenses, your wealth will almost certainly grow over time and help you on your way to financial independence.

Factually speaking, for low-value portfolios, Vanguard Investor UK is the cheapest with 0.15% platform fees and fund fees as low as 0.06%. This, combined with the simplicity and ease of use of the website makes this an excellent choice for a first-time investor. For a LISA, I remain convinced that AJ Bell is an incredible choice with very low fees (0.25% platform fee). For investors who are becoming more serious or those who are interested in individual company shares (not recommended under the low-cost, passive indexing approach) both Charles Stanley Direct and Hargreaves Lansdown are excellent choices with Charles Stanley being the cheaper of the two (0.35% vs 0.45% on portfolios under £250,000) but with Hargreaves Lansdown being the premium, all-around best in class provider.

Please let me know in the comments if you think I missed a worthy contender!

None of the above posts is intended as specific financial or investing advice. Before investing, you should research both the individual investments and the platform you plan to use yourself. This post has laid out what has worked well for me and the factual information of these platforms but what is best for me, may not be what is best for you. Please understand that when you invest in stocks and shares, you do so at the risk of losing money. If you are uncomfortable with this risk, please seek advice before making any investment decisions.

The top 5 best UK investing platforms for passive index fund investing