BROKERS have slashed their charges to rock-bottom levels in an attempt to entice investors keen to build their own Isa portfolio of stocks.

Barclays Stockbrokers now offers regular traders who buy and sell stocks 11 or more times a month a rate of £6.95 per online trade. Even those who deal less frequently pay no more than £12 a deal.

The firm has also cut its administration charges, which now stand at £30 for portfolios worth up to £7,500 and £50 for those above that value.

Meanwhile, rival broker TD Waterhouse, where online trades start from £9.95, has reduced its annual fees to £30 for portfolios worth up to £3,599, and nothing at all for larger investors. Those buying unit trusts through the company also pay no purchase fees.

Angus Rigby, chief executive of TD Waterhouse UK, said: “To get the most from regular investments, the charges to manage and trade within an Isa must be competitive. By holding a wide range of investments under one wrapper, investors are also able to pool their assets, reducing dealing costs while spreading their risk more evenly.”

One of the main reasons brokers are offering such low-cost deals is that they are facing increasing competition from online fund and share supermarkets such as Vantage, from Hargreaves Lansdown, and Funds Network from Fidelity. Vantage, for example, charges from £9.95 for online trades, plus an annual fee of 0.5% of your portfolio up to a maximum of £200.

Those buying funds benefit from no dealing charges and discounts of up to 5.5% on the initial cost of selected schemes.

Once you have chosen the best broker, the next step is to decide what to invest in. One in three investors are unsure where to put their Isa allowance this year, according to Barclays.

The advantage of a do-it-your-self, or self-select, Isa is that you can choose from a variety of asset classes and spread your risk.

Halifax Share Dealing and Barclays Stockbrokers, for example, allow clients to invest in corporate bonds, gilts and unit trusts, as well as UK and foreign companies listed in London.

A growing number of brokers also give access to exchange-traded funds, which are like tracker funds in that they follow an index, but can be traded throughout the day. They are favoured by many professional investors because they give access to exotic markets such as Korea and Taiwan at a fraction of the cost of active funds. For more information go to ishares.com.

Many brokers also offer private investors advanced trading choices such as “stop orders”, which means the company will buy or sell a stock until it reaches a price, known as the “stop” price, which you have chosen.

For less experienced investors, another option is an advisory self-select Isa, such as the one offered by Hoodless Brennan, a broker. These accounts offer access to a personal broker to offer guidance, and generally give the option of trading over the phone, as well as online.

Mark Dampier of adviser Hargreaves Lansdown said: “Most people should find they can do well with an execution-only broker or supermarket – as long as they do their research. However, for absolute beginners I would recommend a service that gives them access to some advice.”

Commission charges for accounts offering advisory services are higher, though. Hoodless Brennan charges from £6.50 per trade through its execution-only service, while those opting for advisory broking pay £17 or more each time they trade.

Investing in funds, another option for those concerned about taking all the investment decisions themselves, also carries greater costs as funds generally charge around 1.5% a year, as well as initial fees of about 5%. We asked a panel of stockbrokers to choose the five shares they would buy and hold for a long-term Isa portfolio.

BP

While Brent crude has soared nearly 70% to more than $100 a barrel in the past year, oil-com-pany shares have not followed suit. BP shares are up just 7% at 528½p, and also have an attractive dividend yield of 4.3%.

Henk Potts, equity strategist at Barclays, said: “BP remains our preferred UK oil company over the medium term, despite its short-term operational problems.”

BHP BILLITON

The Share Centre’s Nick Raynor likes BHP Billiton, the mining firm, not just because of the commodities boom. He said: “We still feel it is the best bet for the longer term in the mining sector.”

The miner is also a favourite of Barclays. Potts said: “Global demand for metals is likely to remain robust, even if a US recession now looks more likely.”

The shares cost 1590p on Friday, up 28.35% over the year, and have a dividend yield of 1.79%.

TESCO

Richard Hunter of Hargreaves Lansdown Stockbrokers tips Britain’s biggest supermarket chain. It is a classic defensive stock – people still need groceries, even in a recession – but it also has growth characteristics.

He said: “Tesco is our favourite of the UK grocers at the moment. One of its main advantages is that it is getting more ofa toehold in the increasingly important Chinese market.”

But The Share Centre is concerned about the company’s exposure to the US.

Raynor said: “Tesco is not on our list because we feel there may be trouble ahead for its American venture. Other than that, however, we quite like the stock.”

Tesco shares cost 405Çp on Friday, putting them down 9.05% over the past 12 months. The dividend yield stands at 2.5%.

BAT

Tobacco companies are yet another example of classic defensive stocks. Hunter believes that British American Tobacco’s share price should reflect the firm’s shrinking production costs over the longer term.

BAT shares stood at 1823p on Friday and pay a dividend yield of 3.6%. The shares have bucked the trend and jumped 12.27% over the last year.

Hunter said: “Tobacco companies are defensive because, like grocers, demand for their products is inelastic – smokers will always smoke no matter how expensive cigarettes become.

“BAT has also been investing in Eastern Europe – where smoking is on the rise – and has moved most of its production out there, in order to benefit from lower production costs.”

VODAFONE

Vodafone, the mobile-phone giant, was a top pick for both Barclays Stockbrokers and The Share Centre, which also listed British Telecom as one of its top 10 Isa shares.

Potts said: “We have recently become more positive on the telecoms sector generally due to the attractive valuations of the big players. However, we prefer the mobile sub-sector, which is why we have chosen Vodafone as a good bet for Isa investors.

“Reasons we like the company include that it has diverse income streams and has enough cash to fund its global expansion plan. I would argue that Vodafone should remain a core position in any investor’s portfolio.”

On Friday, Vodafone shares were trading at 154Äp, exactly the same level as a year ago. The dividend yield is 4.5%.

Times Recommends

• How to sell your home in a downturn
• How to boost your spending power
• Unemployment benefits explained