By: Alex Busson | Updated: 28th October 2020.
If you’re an HSBC customer, you may find this account convenient to set up and use. However, small investors will find its fixed-fee unreasonably high. And it offers nothing particularly unique. If you don’t already bank with HSBC, InvestDirect is not a good enough reason to join.
InvestDirect supports SCRIP distributions. This is where participating companies let you collect dividends in the form of new shares. With SCRIP dividends, you increase your shareholdings without paying extra commissions or stamp duty.
UK share trades cost £10.50 to place online. U.S. shares cost $29.95 per trade. Trades over the phone cost £29.95 each. UK government bonds (gilts) cost £39.95 per trade.
On top of the commissions, you also pay a £42-per-year account fee . This fee is split into 4 payments of £10.50 – withdrawn from your HSBC current account quarterly. It’s worth mentioning that both HSBC’s commissions and fees are on the high side. For HSBC customers – with sizeable accounts – these added costs needn’t be a deciding factor. Indeed, the fixed account fee may save you money compared to brokerages that charge a percentage of your balance. But what if you’re a new investor, starting with £1,000? Well, that same fixed fee would total 4.2% of your account balance. Add to this the steep trading costs, and your odds of making a real return are slim.
With InvestDirect you have access to U.K. equities, ETFs, investment trusts and UK government bonds. If you’re interested in U.S. investments, you’ll need to open an InvestDirect Plus account. This doesn’t cost any extra. You’ll just need to complete a few more forms to meet American regulations. This lets you trade shares listed on the New York Stock Exchange and NASDAQ. For most investors, opening an InvestDirect Plus account makes sense. Frequent traders could save a bundle in commission fees. Place nine trades during any calendar quarter and your commissions drop to £7.95 per trade. This new lower rate lasts until the quarter ends. You can also access a much broader range of shares. One big problem with U.K. markets is the lack of choice. You have a lot of energy and financial stocks. However, other industries – such as tech – are not as readily available. Accessing these foreign markets helps diversify your portfolio.
You must be an HSBC customer to open an InvestDirect account. The process takes roughly three business days. Once you’re set up, you can place trades through your online account. This is linked to your HSBC current account where all of your trades are settled. Your dividends are also paid into your current account as you receive them. One important point: although HSBC supports SCRIP dividend distributions, it does not offer a dividend reinvestment plan. Let me explain the difference. Many companies let you take dividends in the form of new shares. These “SCRIP” payments are popular with dividend investors, because you avoid the fees and stamp duty costs of buying new shares. However, not all companies offer SCRIP plans to shareholders. In these cases, you would need to set up a dividend reinvestment plan (DRIP) with your broker. This is where your broker takes the cash dividend, but automatically reinvests it back into new shares. Similar to SCRIP distributions, you typically pay a much lower fee on reinvestments. Since InvestDirect does not offer a DRIP service, this may be an important factor to consider.
InvestDirect presents you with market news, and company information, all in one convenient place. Pull up analyst reports and opinions. This gives you a consensus on the shares your considering. If you’re new to investing, you can also practice with a “virtual portfolio.” This lets you place pretend trades. You can see how your investment strategies work before you risk any real money. Is there a particular stock you’re watching? You don’t have to keep checking for the right moment to buy or sell. Simply tell InvestDirect your desired share price – or any other criteria. You are sent an instant “email alert” the moment it’s time to strike.
HSBC’s phone lines are open Monday-Friday (7.30am-9.30pm). However, the quality of this support has mixed reviews online. Long wait-times are a common complaint. In a recent Which? survey, HSBC scored 3/5 stars for customer service.
If you already bank with HSBC, then you may find InvestDirect convenient. It’s handy to manage all of your finances from one place. Trades are settled in your current account. And dividends are paid to you direct. What’s more, large account-holders shouldn’t be troubled by the £42 annual fee. However, it’s definitely not worth becoming an HSBC customer just to use InvestDirect. For starters, it’s not your cheapest option by a long shot. Nor does it offer anything particularly unique. Frequent traders and small account holders should certainly look elsewhere.