Yahoo Finance Thousands of millennials losing out to high Lifetime Isa fees – why it pays to invest yourself
Millennial investors are leaving themselves thousands of pounds worse off in their attempt to save for their first homes by investing in ready-made Lifetime Isa (Lisa) portfolios, which charge high fees.
Almost 300,000 Lisa accounts have been opened since they launched, allowing savings of up to £4,000 a year, topped up by a government bonus of 25pc if the money is put towards retirement or buying a first home.
These accounts are expected to increase in popularity as the Help to Buy Isa, which can only be put towards a first home, is taken off the market in November.
Despite this, only three of the major brokers offer Lifetime Isas, and only two of those give savers the option of cutting the cost of investment by managing their own portfolio.
Going it alone and putting your money into a collection of low-cost funds could add thousands to put towards your deposit, securing a larger mortgage or building a new kitchen, Telegraph Money has found.
The Share Centre, a broker, only allows its Lisa clients to invest via its own in-house funds, which charge ongoing fees of up to 1.68pc, but does not charge additional platform fees.
Rival AJ Bell does offer DIY Lisas, but investing via ready-made portfolios can cost up to 0.84pc, on top of platform fees of 0.25pc.
Hargreaves Lansdown, Britain’s biggest broker, has 55,000 Lisa customers, 5pc of which invest via ready-made portfolios charging as much as 1.45pc, on top of its 0.45pc platform fee.
If you invested via the Share Centre with a starting pot of £4,347 – the average amount customers on the platform have in their accounts – and made the maximum annual contribution to take advantage of the government bonus, you would have £61,629 after 10 years, assuming investment returns of 4pc a year. Over that time, you would have lost more than £6,000 in fees.
If those fees were cut in half, you would have saved £64,565 – almost £3,000 better off.
This could easily be achieved by investing in a low-cost passive fund such as Vanguard Life Strategy, which only charges 0.22pc, even via brokers with the highest platform fees.
Slashing fees by investing in self-selected cheap funds with AJ Bell, based on the same assumptions, would save you nearly £2,000, compared to investing through its in-house funds. Doing the same via Hargreaves, steering clear of its ready-made portfolios, would leave you more than £3,250 better off.
The Share Centre said it made a “corporate decision” not to offer a DIY investment Lisa to its customers when the savings account was launched, but said it will be “monitoring investor appetite” very closely as Help to Buy Isas close to new savers later this year.
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