Investing through your high street bank was once a big no-no.
Renowned for their steep charges, poor performance and limited choice, they rarely offered the best option for investors. But as they slash costs and smarten up their offerings, could investing where you do your everyday banking finally make sense?
All of the big five high street banks – NatWest, Lloyds Bank, HSBC, Barclays and Santander – operate investment platforms for customers.
The banks are well placed to capture their custom. They have brand power, a high street presence – and customers already trust them with their money.
Money in the bank: All of the big five – NatWest, Lloyds Bank, HSBC, Barclays and Santander – operate investment platforms for customers
High street banks also now offer ready-made options for investors who have neither the time nor inclination to research investment funds, pick stocks or reposition a portfolio through periods of constant economic change.
This month, NatWest raised the stakes by cutting service fees – from 35p per £100 invested down to 15p, in a bid to entice more customers into its investment fold.
Dylan Williams, head of ‘affluent’ at NatWest, says: ‘We need to make investing more accessible for everyone – cost must not be a barrier. This is an opportunity for those individuals and families who can, to invest and secure their financial wellbeing for the long-term.’
Ready-made investment funds allow you to choose the level of risk you want to take with your money and the bank then looks after everything else from that point onwards.
You can select from a basic menu of between three and five funds, ranging from low-risk to a bolder strategy for the long term.
Lloyds Bank has three different funds to choose from, Santander four, while Barclays, HSBC and NatWest each have five.
Alternatively, you can reach for a bit more hand-holding with an advice service that helps people decide which fund to tip their money into.
All offer this except Lloyds Bank, which shares guidance but not advice.
Typically, investors can start with just £50 a month – with Santander it is as low as £20 and with Lloyds Bank it is £100.
NatWest, Barclays, Lloyds Bank and HSBC only allow their own online banking customers to sign up to their no-frills investment plans. But Santander welcomes customers who bank elsewhere.
Customers with a current or savings account with a high street bank will find the path to investing with them easy to navigate. The familiarity may also be appealing if they have never invested before.
And an uncomplicated route to investing is welcome if it translates into more people doing it.
Holly Mackay, of straight-talking investment website BoringMoney, says: ‘Some traditional financial advisers will not see clients with less than £100,000 of investments and so people need a credible digital alternative.
‘For those people who want help – and feel hesitant – I think digital advice services from banks are worth a look.’ But investors could be forgiven for questioning whether investing through their bank represents good value for money.
Justin Modray, of independent adviser Candid Financial Advice, says: ‘Banks have historically been poor value for investments, with customers typically suffering from high charges and poor performance. Thankfully that is changing, to an extent.’
Modray points out that most banks also offer a platform with a wider range of investments from across the market, allowing more engaged retail investors to pick their own funds or individual company shares.
He adds: ‘Provided your bank does this, then gone are the days when you should avoid investing money with them at all costs.’
However, for people chasing an easy life it will be the ready-made funds that appeal.
And some experts argue that these ready-made funds still don’t offer good value.
Damien Fahy, founder of personal finance website MoneytotheMasses, says: ‘NatWest offers five investment choices, all of which have underperformed their respective benchmarks since launch.’
For ‘medium risk’ ready-made portfolios, Santander’s fund has also underperformed its benchmark.
What other options are there for investors?
Established investment platforms offer an alternative to high street banks. They tend to provide more choice and can be lower cost.
Modray says: ‘There are plenty of investment platforms vying for your business, such as AJ Bell, Fidelity and Hargreaves Lansdown.
‘They all fundamentally do the same thing but charges and service, along with bells and whistles, vary. It’s worthwhile comparing your bank to these and finding a platform that best suits your needs.’
These longstanding platforms offer an extensive range of investments and the option for investors to choose funds themselves.
For those who prefer less choice, they also provide suggested portfolios of funds, depending on your appetite for risk.
Modray adds: ‘A wide choice of investments is great, but not if it confuses or leads to you making a poor decision.
‘Recommended portfolios of funds are a sensible starting point.’
Robo-advisers are another alternative.
These are online companies that ask customers a series of questions and find a portfolio suitable for them based on their answers.
Fahy says: ‘Costs are broadly in line with those of NatWest but they offer more fund choice – often including ethical options – and in many cases better investment performance.’
Examples include Nutmeg, Wealthify, Wealthsimple and Moneyfarm. Robo-advisers often come with state-of-the-art apps for smartphones or tablets and modern branding.
But Mackay doesn’t write off banks completely. She adds: ‘Banks might not have the same sexy apps that some of the newer robo-advisers do, but they present a credible way for less confident people to put a toe into the world of investing.’
She highlights a useful tool from Santander’s ‘digital investment adviser’, which guides customers through a series of questions to work out a person’s risk profile, how they might cope with financial loss – and then comes up with a personalised suitability report.
If a customer chooses to buy the £20 report, it will also recommend which one of its four funds to invest in.
Mackay says: ‘It’s up to you whether you proceed with Santander or another provider. But that report in itself is useful. Most people just want someone to tell them what to do – if that sounds like you, then at least have a look at the tools and take the questionnaire.’
Investing at the bank may be an imperfect start for investors, but sometimes starting is what matters most.
Mackay adds: ‘It’s affordable and will often beat the alternative for long-term savers – which is sitting there doing nothing with your money for another year whilst you worry about what to do.’
HOW THE FUNDS MEASURE UP:
Each bank offers between three and five investment funds, ranging from low-risk to adventurous. They primarily invest in index-tracking funds which helps to keep costs down.
For each bank, we have given details of the mid-range – or balanced – fund.
Its five funds range from ‘cautious’ to ‘daring’. They are all managed by Coutts and made up of bonds, equities and cash.
NatWest describes its balanced fund as ‘like the first dip in a lake. It may be colder and get your heart rate going, but there should be some beautiful views’. Its largest holding is Vanguard FTSE UK All Share Index Fund. This is comprised of all the companies listed in the UK.
If you had invested £5,000 at the fund’s launch in June 2016, it would be worth £6,758 today.
Its five funds are made up of cash, equities, bonds and property.
The largest holding in its Global Strategy Balanced Portfolio is HSBC American Index Fund. Its biggest equity holdings are Apple and Microsoft. A sum of £5,000 invested five years ago would be worth £7,800 today.
It offers five funds, all managed by Barclays Investment Solutions. Its mid-range fund is Barclays Wealth Global Markets 3 (Balanced). Its risk level is described as like ‘riding a bike in the road, but still in the cycle lane’.
It has 12 per cent in cash, 38 per cent bonds and 50 per cent in shares. If you had invested £5,000 five years ago, it would be worth £6,792 today.
Its four funds are named Multi Index fund 1, 2, 3 and 4.
Santander’s Multi Index Fund 2 has its largest holding in sterling corporate bonds (43 per cent), followed by UK equities (18 per cent). It will never invest more than half of its portfolio in global equities. The fund was launched in 2016. A sum of £5,000 invested three years ago would be worth £5,392 today.
Its three ready-made funds are managed by Scottish Widows, which is part of Lloyds Banking Group. Managed Growth Fund 4 is made up of 49 per cent shares with the rest primarily in bonds and property. The fund was launched in September last year and its largest holding is Scottish Widows UK All Share Tracker.