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Special Survey of Terms of On-line Stockbrokers
Other Ways of Investing in Shares

On-Line Stockbrokers

You open an account with an on-line stockbroker and then place your buy and sell orders by accessing pages through your Intenet browser instead of by phone.

You normally have to place money on deposit, in a clients' account at the stockbroker's bank or in a cash unit trust controlled by the broker in advance of any transactions. You usually get reasonably good interest on money awaiting investment. You will be able to see the market price on the screen before you trade and some brokers allow you to set limits on the prices you want to buy and sell at.

You can set up a watch list of shares you hold (and also shares you are considering buying but don't yet hold) which will automatically be revalued each time you access the pages. This can also be done at a number of other internet sites and some of these work faster than those linked to on-line brokers.

Some companies allow you to set a stop loss orders which will automatically sell any holding if it drops to a specified price. In some cases you may be able to do the same when a share rises to the price you want to sell at.

Who can invest Anyone over age 18.

How worthwhile A very useful service if you prefer to buy and sell without speaking to someone and also if you wish to trade frequently.

The sites generally work well although there can be problems with slow loading times which may or may not be the fault of the brokers' web sites. Although most have a telephone alternative, usually at the on-line commission charges if thereason for phoning is their fault, at times of heavy trading the sites can become almost unusable with delays. Gilt edged purchases may also have to be done over the phone. If you can't complain to the company easily, ask to speak to or write to the Compliance Officer. For more on investing in shares, see How Best to Invest in Stocks and Shares and Shares A Beginners' Guide to Making Money.

Minimum Usually £1,000 to £10,000.

Maximum Usually none.

Suitable Lump sums.

Money back A few days. In common with some telephone stockbrokers, as your shares are usually held by a nominee of the stockbroker or registered with Crest by that broker, you must sell through the same broker whom you bought through. With some companies, they in effect open a new bank account for you so you can get money out just by paying a cheque to yourself. With others money is debited and credited to and from an existing bank account which you have designated for transactions. Charles Schwab offers a debit card as well as a US dollar cheque book on its US dollar service.

Interest Varies.

Interest paid Credited to the account. Share dividends: you usually have a choice of re-investing the net dividend in the same shares, often without commission; having the amount paid to your own bank account; or having the amount credited to your account with the stockbroker.

Tax 20% tax may or may not be deducted from any interest on deposits awaiting investment. UK tax is not deducted if the stockbrokers are abroad but the income should still be returned on a tax return. Tax will be deducted from dividends which will usually be allowed as a credit against UK tax or you will be asked to pay UK tax later, for instance on bonds where tax is not deducted.

Fees to pay These vary and there are sometimes special offers. As well as commission there may be a yearly or quarterly fee. Such extra charges are sometimes not as clearly stated as they should be. For instance you might be charged £60 a year plus £1 for each stock held per quarter (maximum £30). So with 30 stocks you could be paying £180 a year as well as commission on each transaction. However the companies which make yearly charges have lower commission rates. So if you pay a fixed commission of £19.50 for a £3,000 transaction instead of £30, and buy and sell 30 shares during the year, you would be about £135 better off paying the annual charges than higher commission charges. Also remember that there is 0.5% stamp duty on purchases of shares through a UK stockbroker.

Passbook A record of transactions is also kept on-line. Your shares will normally be held by the stockbroker's own nominee company so you will not receive a certificate or you can hold them in Crest. Some brokers send statements of each transaction; with others you have to rely on the on-line information entirely.

Children You must be over age 18.

Risk High. The value of shares goes down as well as up. You should choose a broker which allows you to set a limit on your transaction. It is strongly recommended that for UK share dealing, you use a broker which has your shares registered with Crest - only a few do this which makes choosing a broker much easier. Where you are dealing with a US stockbroker (in the US as opposed to a UK subsidiary) the compensation scheme levels are generally higher. Crest only applies to shares quoted in the UK.

How to invest Check out the charges and terms. Then go to the company's Web site and complete an application or phone for one. You will be asked to print it out, sign it and send it in by post sometimes together with evidence of identity, e.g. bank statement, photocopy of your passport, uitlity bill etc.

Where from Choose a broker from our table of charges and terms which gives you real time prices, limit trading and does not charge too much.

Special Survey of Terms of On-line Stockbrokers
Other Ways of Investing in Shares
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Last updated 22 August 2005