Fees: the quiet leak
Lesson 7 of 12 in our free Investing Basics guide: a 5-minute money game with the key points below.
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Questions you'll answer
Illustration: £10,000 for 30 years. Growth before fees is 5% a year. Fund A charges 0.2% a year; Fund B charges 1.5%. Roughly how much MORE does Fund A end up with?
Quick facts
- 0.2% a year charged by the fund itself → Fund charge. The ongoing charge for running the fund.
- 0.25% a year for holding your investments on an app or website → Platform fee. The platform's fee for looking after your account.
- £5 each time you buy or sell → Dealing/transaction fee. Per-trade fees add up if you trade a lot.
- A monthly flat fee for your account → Platform fee. Some platforms charge flat fees — better for bigger pots, worse for small ones.
- Myth: “A higher fee guarantees a better fund.” — Price isn't quality here. Higher costs are a hurdle the fund has to clear first.
- Fact: “Trading often can rack up costs that eat into returns.” — Each trade can cost money, and frequent trading is linked to worse outcomes for many people.
- Fact: “Flat fees can take a big percentage from a small pot.” — £5 a month on a £500 pot is 12% a year. Ouch.