Index funds are a popular way to invest in the stock market without picking individual stocks or paying high fees to active fund managers.
But how do you choose the best online broker in the UK for index funds? There are many factors to consider, such as the range of index funds available, the fees and charges, the trading platforms and tools, the customer service and support, and the reputation and security of the broker.
For your convenience, we used our market experience to check and test offers from many companies, ultimately choosing three of the best online brokers in the UK for index funds:
- Interactive Brokers: Best for the highest index fund offering
- Interactive Investor: Best for simplicity
- Hargreaves Lansdown: Best for customer service
We will examine their pros and cons and help you decide which suits your needs and preferences.
Best Online Broker in the UK for Index Funds
|Number of international markets
|0.05% of Trade Value (min. £1)
|Minimum monthly activity fee of £3.
|From £4.99 a month for investments below £50,000.
|Every UK and US funds trades £3.99. 1 or 2 free monthly trades in higher subscription plans.
|£11.95 charge per deal (if 0-9 deals in the previous month).
|0.45% commission on the first £250,000 in funds.
Interactive Brokers: Best for the Highest Index Fund Offering
Interactive Brokers in a nutshell
Interactive Brokers (IBKR) is a global online broker that offers access to over 150 markets in 33 countries and 27 currencies. IBKR has many investment products, including stocks, options, futures, currencies, bonds and funds. Among these, IBKR has one of the highest index fund offerings in the UK, with over 13,000 ETFs.
We understand that ETFs are not precisely the same as index funds (although they belong to the same family of financial instruments). However, they are similar enough, and Interactive Brokers’ offering is so extensive that, in our opinion, it couldn’t be left out.
What is the only difference? ETFs can be bought or sold anytime during the day, whereas index funds are only priced at the end of the trading session (like a mutual fund). In practice, investing through ETFs and/or index funds should offer you very similar returns.
IBKR also has a powerful suite of technology that helps you optimise your trading speed and efficiency and perform sophisticated portfolio analysis. You can choose from several trading platforms, such as IBKR Trader Workstation (TWS), IBKR Mobile, IBKR GlobalTrader, IBKR Client Portal, or IBKR WebTrader. You can also use IBKR’s order types and algorithms to execute your trades at the best possible prices and minimise market impact.
The Interactive Brokers’ fees are structured according to a tiered pricing model and fluctuate based on the trading platform and the volume of your transactions. For example, the costs for most ETFs listed in the UK are 0.05% of the trade’s value, with a minimum charge of £1.25 and a cap of £29.00.
In addition, the broker offers a “fee waived” programme providing more than 90 funds that refund customers for any fees incurred when holding the ETF shares for a minimum of 30 days.
|Highest funds offering in the UK
|A lengthy and extensive account opening process
|Low commissions and margin rates
|Complex fee structure and reporting
|Global access to multiple markets and currencies
|The steep learning curve for beginners
Interactive Investor: Best for Simplicity
Interactive Investor is a UK-based online broker that offers a low-cost flat-fee investment platform for ISAs, SIPPs, pensions, savings, and more. II has over 18,000 5-star reviews on Trustpilot, making it one of the most trusted investment platforms in the UK.
The broker has a simple and transparent fee structure that lets you pay a fixed monthly fee from £4.99 to £19.99, depending on your account type and service level. This fee gives you access to thousands of investment options, including shares, funds, investment trusts, ETFs, bonds, gilts, IPOs, and US and international stocks. II also offers over 3,000 index funds from over 200 fund providers on its platform.
Moreover, Interactive Investor offers an easy-to-use website and mobile app to manage your investments online. You can also access a wealth of information on shares, funds, markets, and news from research teams and news providers. Interactive Investor also provides free investment guides, newsletters, and tools to help you learn how to invest.
|Low-cost flat-fee investment platform with a simple and transparent fee structure
|Limited access to global markets and currencies
|Free trade and credit every month (not included in the cheapest plan)
|No advanced trading platforms or tools
|Easy-to-use website and mobile app
Hargreaves Lansdown: Best for Customer Service
Hargreaves Lansdown in a nutshell
Hargreaves Lansdown is one the UK’s largest investment platforms, with over 1.6 million clients and £135.5 billion of assets under administration. It offers a similar type and range of products as Interactive Investors, including 3,000 index funds from more than 250 fund managers available on its platform.
Our experience shows that the broker has high-quality customer service and has won several awards and accolades. The company has professional staff members who are trained to help you with your queries and requests. You can contact the company by phone, email, live chat, or post. The response time is short, and the information provided is helpful and comprehensive. Hargreaves Lansdown also has a comprehensive help centre that provides answers to frequently asked questions and useful forms and documents.
The company charges a percentage-based annual fee of 0.45% for its index funds, capped at £45 per year for ISAs and £200 per year for SIPPs. Hargreaves Lansdown also charges a dealing fee of £11.95 per trade for index funds, which can be reduced to as low as £5.95 per trade if you trade frequently. These fees are higher than those of IBKR and Interactive Investor, which can be a significant downside.
|High-quality customer service
|Percentage-based annual fee for index funds
|Range of investment ideas, expert picks, model portfolios, and sustainable investing options
|High dealing fee for index funds
|Intuitive and user-friendly website and mobile app
|Limited access to global markets and currencies
Why You Should Try Index Funds in the First Place?
Index funds are financial instruments that aim to replicate the performance of a market index, like the FTSE 100 or S&P 500, by investing in the underlying securities of that index (just like ETFs).
Some key features of index funds that you should consider:
- Passive investing strategy – The fund manager does not pick stocks but simply tracks the index. This keeps costs low compared to actively managed funds.
- Diversification – Index funds hold many securities, providing exposure to a broad market segment. This helps reduce investment risk.
- Low costs – Index funds do not require extensive research and stock picking, so they have lower management fees than active funds, often less than 0.5%.
- Tax efficiency – Index funds tend to have lower turnover of holdings, meaning potentially lower capital gains distributions.
If you want to try index funds, you should pick ones that reflect your investing strategy. Consider your goals, time horizon, and risk tolerance. Broad market index funds can provide a solid core holding, while specialised funds target specific sectors or regions.
The most popular UK index funds track the FTSE 100, FTSE 250, FTSE All-Share, and FTSE UK All Stocks indices.
Choosing the best online broker for index funds in the UK depends on your personal preferences and needs. If you want the highest index fund offering, low commissions and margin rates, then Interactive Brokers might be your best option. However, you must pay a monthly activity fee if your account balance is low or you trade infrequently.
If you want a low-cost flat-fee investment platform and easy-to-use website and mobile app, then choose Interactive Investor. However, You must remember that this option will limit your access to global markets, currencies, and more advanced trading platforms.
Do you search for high-quality customer service, sustainable investing options and capped annual fees for index funds? In that case, Hargreaves Lansdown might be the best choice. However, you will pay a percentage-based yearly fee and a high dealing fee for your index funds.
Ultimately, the best online broker in the UK for index funds is the one that meets your investment goals, risk appetite and budget. In our opinion, you’ll find one that meets your expectations among the three options we’ve explicitly reviewed for you.
What is the best UK index fund?
Some top index funds in the UK include the iShares Core FTSE 100 UCITS ETF, Vanguard FTSE 100 UCITS ETF, and HSBC FTSE 100 UCITS ETF. These track the FTSE 100, which covers the 100 largest companies on the London Stock Exchange.
Where to buy index funds in the UK?
You can buy index funds through an investment platform or brokerage account with providers like Hargreaves Lansdown, Interactive Investor, and Interactive Brokers.
Can I invest in an S&P 500 index fund from the UK?
Yes, you can invest in the S&P 500 index from the UK by buying an ETF or index fund that tracks the S&P 500 performance. Some options are Vanguard S&P 500 UCITS ETF and iShares Core S&P 500 UCITS ETF.
How to invest in the UK index?
Investing in a broad market ETF tracking the FTSE 100, FTSE 250, or FTSE All-Share indexes is the easiest way. Open a brokerage account, deposit funds, and buy shares in your preferred UK index ETF or index fund.
How much tax do you pay on index funds in the UK?
Index funds held in a Stocks and Shares ISA or SIPP wrapper are tax-free. Outside of tax-advantaged accounts, capital gains above the allowance and dividend income are subject to tax.
Is it better to invest in index funds or ETFs?
Both offer low-cost, diversified exposure to markets. ETFs can be traded anytime, while index funds trade at the end of the day. For long-term investing, index funds and ETFs are similarly good options.