Understanding investment fees

This week I’m covering a topic one of my colleagues recently asked about - investment fees. These can certainly be hard to understand as various platforms charge differently and it can also depend on the investment product you choose (stocks and shares ISA, SIPP, LISA, etc) as well as the amount you’re investing.

Sounds a bit complicated? IT IS 🫠 

Investing fees can also depend on whether your investments are active or passive. When investing in index funds, you can typically expect lower fees overall as there is no one actively managing your portfolio.

In general, there are 3 different types of fees when it comes to investing:

• Platform fee

• Fund/share trading fee

• Fund fees (similar on all platforms)

To keep things simple, we will mainly look at fees related to investing through a stock and shares ISA.

🏦 Platform fees

This is usually what the platform charges for using their service (similar to banks) and is either a percentage fee based on your investments or a flat fee. These have come down in the last few years as there is more competition now, which is great for all retail investors.

Some are completely free!

For example, my favourite investment platform for index funds, Vanguard, has got one of the lowest fees on the market and could be a great benchmark to compare.

The platform fee is a simple 0.15% of your investments, which is also capped, so you wouldn't pay more than £375 on larger sums.

Meanwhile, Trading212 which is great for share buying and selling has zero cost to have an account with them.

💰️ Fund and share trading fees

A few newer investment platforms don’t charge for buying or selling funds (and sometimes shares) allowing for more flexibility. So if you want to experiment more, these are great.

However, there are some that do and it’s worth noting this down as over longer periods of time it can really add up and eat into your returns.

Platforms like AJ Bell, Hargreaves Lansdown and Interactive Investor are known to be one of the more expensive to trade on as they charge anywhere from £1.50 to £11.95 per trade. If you want to invest smaller amounts more frequently, choosing them wouldn’t make much sense.

 📈 Fund fees

Although fund fees will be similar on most platforms, they can still add to the final amount, so it’s worth paying attention to what they are for different types of funds.

For example, some of the lowest fund fees are on more established index funds like the S&P 500, which is only 0.07%. On average you can expect to pay anywhere from 0.1% to 0.3% for funds.

Here’s a good overview of the different fees you might expect to pay on main investing platforms.

If this still sounds a bit confusing, look at the platform fee + fund fee. If the total is less than 0.5%, I would consider it low and worth choosing for value investing. Anything closer to 1% or above would be considered as high.

My weekly recommendation

Not exactly personal finance related, but I’ve been enjoying Ali Abdaal’s new book on productivity. I loved his concept of gamifying a task or a process you don’t find particularly enjoyable and turning it around.

I’ve been testing it in my own work and it’s surprisingly effective!

Give it a go 🤟

Until next time ✌️

Lina at Money Blues