Charles Schwab introduces no-fee trading in US stocks for UK investors

Amid the growing demand for “democratizing” investments, retail investors are spoiled for choice when it comes to the platforms on offer.

With platforms competing for the lowest possible price, top US broker Charles Schwab now wants a piece of the pie.

Investors can now use the Charles Schwab platform to invest in US-listed stocks with $0 online trading commission and no sign-up fees, This Is Money can reveal.

Previously, investors had to make a minimum investment of $25,000 to use the platform.

Investors pay no fees for online transactions in listed US stocks or government bonds. Those wishing to trade corporate and municipal bonds pay $1 per bond, while option trading costs $0.65 per contract.

“Over the past five years we have seen very significant growth in the number of UK investors using Schwab’s platform to trade in the US…part of that growth has enabled us to reduce the minimum investment from $25,000 to zero,” Richard Flynn, UK managing director at Charles Schwab told This Is Money.

“We have a number of US expatriate clients who find the service to be of tremendous value because all of Schwab’s trading and custody takes place in the US and so it is very attractive to them that their assets are not held outside the US, which is helpful for tax filing purposes.”

How does the Charles Schwab platform work?

Unlike other investment platforms in the UK, Charles Schwab’s platform only trades in US dollars.

“For people who would have used UK brokers to trade US equities and pay those FX rates, we think there may be significant benefits to trading US equities through a US dollar platform,” said Flynn.

“And we hope that lowering this minimum will encourage people to use Schwab for their US trading, while perhaps continuing to use UK traders for their Pound sterling investments.”

You’ll still need to convert your sterling before opening an account, but it doesn’t have to be done exclusively at Charles Schwab.

As a UK taxpayer, you must complete a W-8 BEN form confirming that you are not a US taxpayer.

Any dividends received on US shares that you may hold in the account, you will pay 15 percent withholding tax on the dividend, which can then be credited to your UK tax return.

You can open an account online by submitting some supporting documents, including your ID and a copy of a utility bill.

Once the account is opened, you can deposit money into your account and start investing.

How does Charles Schwab compare to other investing apps?

The market for low-cost investment platforms has become increasingly crowded in recent months.

Beginners like Free trade* and eToro* do not charge transaction fees for stocks, ETFs and mutual funds, although there is a currency exchange fee for buying US stocks.

Although Charles Schwab’s platform trades in dollars, investors will still need to move their funds and pay any FX fees.

This year, Freetrade surpassed 1 million subscribers thanks to its generous referral program and cheap plans.

The Basic plan offers a GIA, commission-free trades, and US fractional shares for free, but only 1,500 shares are offered.

The Standard plan costs £4.99 per month and customers can open a GIA and share Isa, although this is a standard Isa and not the flexible one offered by CMC.

Freetrade also offers a Sipp for Plus customers, which costs £9.99 per month.

As stock trading and investing has exploded in popularity since the pandemic, a new generation of investors is increasingly drawn to big US stocks.

An attractive part of the new do-it-yourself investment platforms like Freetrade is the chance for investors to get their hands on fractional shares: a way to support stock market breakers for a fraction of the cost of a single share.

Fractional stock investing allows investors to own a portion of a stock rather than one or more whole individual stocks.

The upside is that these could otherwise be out of reach for smaller investors, or take up too much of an individual’s portfolio to remain diversified.

Flynn told This Is Money that Charles Schwab is not currently offering fractional shares, but will roll it out to investors later this year.

The platform hopes to take advantage by rolling out a range of learning resources over the course of 2023 and 2024 at no additional cost.

Flynn said: ‘With the rise of retail investment, we think there’s a big market for people who want help. They don’t necessarily want guidance or advice or recommendations.

“They want help making their own investment decisions and getting the most out of a platform like Schwab can offer.”