Don't draw a dud at the pick'n'mix

Self-select ISAs give you freedom to choose shares - but at a price, writes Stephen Spurdon`

If you are a committed DIY investor, you should look into using your tax-free individual savings account (ISA) allowance as a wrapper for shares you select yourself. Doing this allows you to buy up to pounds 7,000 of shares from the range of permitted investments. The downside is that only a small number of self-select ISA managers will allow investment across the range of permitted assets. And this freedom has its price.

Most self-select account managers offer both a maxi ISA with investment in stocks, with some offering a cash component, and a mini shares-only ISA. The maxi allows investment of the full 1999/2000 allocation of pounds 7,000 in stocks if you don't use the cash component, but with the mini you are restricted to pounds 3,000. (Choosing a mini ISA does allow you to keep another pounds 3,000 cash in a tax free savings account.)

Many self-select plans are designed to take only lump-sum investments of between pounds 250 and pounds 3,000. An exception here is execution-only broker Halifax Share Dealing's ShareXpress maxi and mini stocks ISAs, with minimum lump sum and regular monthly savings limits of pounds 50. This cash will earn interest pending investment, which has to be "within a reasonable time period". Alliance Trust Savings' Alliance Select ISA's minimum is pounds 250 by cheque, but pounds 50 by monthly direct debit.

In theory, self-select ISAs allow investment in UK and overseas shares listed on recognised exchanges, unit and investment trusts as well as corporate bonds and some gilts. Few self-select ISAs allow investment in the full list.

Not all managers offer anything other than shares, and where they do there may also be restrictions. For investment funds, NatWest ISA only offers a selection of in-house NatWest and Gartmore unit trusts.

The next thing to look at are basic charges for opening and running the account. Self-select ISAs don't have initial or set-up charges, but most have an annual charge. This is usually expressed as a percentage charge per quarter with a minimum sum, the usual range being 0.5 per cent to 1.5 per cent a year with a minimum of pounds 25 to pounds 50. In rare cases there will not be an annual charge, but the provider will charge for dividend collection separately.

With annual charges, look to see if this a fixed sum or a percentage. If it is the latter, and there is no maximum stated remember that the amount you pay will grow or decline with the fortunes of your investment. Also VAT is imposed on charges, apart from dealing costs.

The next charging element to consider is dealing costs. With equities, stockbrokers list a minimum deal charge, which of course will have a disproportionate effect on smaller deals. Stated minimum levels range from around pounds 9 to pounds 45, with dealing rates on a scale starting at between 0.5 per cent and 2 per cent, and declining thereafter for larger deals.

When buying unit trusts/ oeics, there will be an initial charge of up to 5 per cent. As up to 3 per cent of this is commission, check whether your ISA manager discounts this element of the initial charge.

Managers may also impose charges for ad hoc valuations, annual reports and accounts, attending meetings, and transfers in and out. There may also be a facility to receive a regular income from your ISA investments, for which there may be a fee. Also check if you have to pay for the collection of dividends and reclaiming tax. There may also be a charge per holding for custody and for having your shares held by a nominee.

Halifax's scale starts at a flat rate of pounds 15 for deals ranging up to pounds 2,000. There is no set-up fee, but Halifax charges an administration charge of 0.5 per cent plus VAT with a minimum of pounds 26 and maximum of pounds 100. However, there is no charge for such things as dividend and tax credit collection, transfers in or out and shareholder information and meetings.

Killik & Co charges 1.65 per cent for deals of up to pounds 15,000, with a minimum of pounds 40. There is no set up fee, but there is an annual custody charge of pounds 10 per account and pounds 7.50 per dividend handling fee. However, with the Killik account you have unlimited access to a broker for advice, while the Halifax service is execution-only.

Most self-select ISAs are provided by conventional stockbrokers such as Greig Middleton and Killik & Co, with offices around the country. You can also buy through execution-only telephone and internet-based stockbrokers such as Charles Schwab and The Share Centre. The high street banks' stockbroking arms are also in on the act, with Halifax, NatWest and Barclays offering accounts. Lloyds TSB group offers a self-select account through its high net worth asset management arm Lloyds Private Banking.

The only fund manager offering a self-select ISA is Alliance Trust & Savings. Here, the first pounds 50 invested has to be in either of the manager's investment trusts - Alliance Trust or Second Alliance Trust. This holding has to be retained so that you can invest elsewhere in a range of FT-SE 350 shares, investment trusts gilts, corporate bonds and bond funds.

Contacts: Alliance Trust & Savings, 01382 201 900; Barclays Stockbrokers, 0345 777 300; Charles Schwab, 0870 601 1234; Greig Middleton, 0171 655 4000; Halifax Dealing Services, 0990 711 117; Killik & Co, 0171 761 4400; Lloyds Private Banking, contact local Lloyds branch; NatWest, 0800 200 400; The Share Centre, 0800 800 008.