How much does investing cost?
You can’t avoid fees when investing – but it’s good to know exactly how much you’ll pay so that you can plan ahead.
What you will learn
- What charges you might pay when investing
- What you can expect to pay for financial advice
- How to make sure you’re getting good value
- How to get expert help, if you need it
As an investor, you can expect to pay fees along the way. These charges, which are often shown as a percentage of how much being invested, might seem low but it’s important to see how they add up.
The cost of investing on your own
You will pay a fee each time you buy or sell shares when you invest directly. Trading charges vary, but are often around £10-15 per trade.
But you might benefit from a reduced ‘frequent trading’ rate if you go over a certain amount per month.
Don’t forget that you’ll pay 0.5% in stamp duty on share purchases. There may also be an ‘inactivity fee’ for some accounts if you don’t trade over a set period.
What you pay for with a platform
Along with investment management charges, there will be a fee for using an online platform. Charges vary, but they are usually based on a percentage or a flat annual rate.
Some offer useful services like investment data and portfolio analysis tools, while others are strictly ‘no-frills’.
Fees are split between charges made for managing your fund, and the amount paid to people who sell the product to you.
The price of broker expertise
Broker charges are for what’s known as ‘execution only’ services. That’s where you take responsibility for making the decisions about which shares to buy and sell.
If you get a broker’s advice on what to buy and sell, or let them make trades for you, you’ll be paying more for their expertise.
Inside fund charges
Fund charges have been reformed in recent years. That means it’s now easier to find out how much investing in a fund will cost.
By law, investment funds must publish their ‘ongoing charge’ – the total of management and additional costs (but not broker, platform or adviser costs). You can find it in any fund’s Key Investor.
Fund charges generally fall between 0.25% to 1.4% of your investment amount per year. Actively managed funds, where a professional fund manager makes investment decisions and reacts to events, typically charge higher fees than tracker funds which simply follow a market.
Tracker funds rise and fall with a market, and so can’t grow more quickly. An actively managed fund could do much better – but there are no guarantees.
Paying higher fees in return for a chance to earn more money is a decision that an investor will make based on how much risk they’re willing to take.
Some funds also charge a ‘performance fee’ of around 20%, where the performance of an investment tops a certain number. Again, you’ll need to factor in platform costs, assuming you use a DIY service, or broker fees.
Get expert help if you need it
Once you add up the fees that would apply to your investments, you can check if their growth potential makes it worth the costs. Otherwise, you can look at other products that offer better value.
Not sure whether to choose your own investments or speak to an expert? Read our article on taking advice versus doing it yourself.
Risk notice
Any information provided should not be considered personal advice. Past performance is not a guide to future performance. You may not get back the full amount you invest. If you have any doubts about making your own investment decisions, seek financial advice. Tax treatment depends on individual circumstances and may be subject to change in the future. The information given is not intended to provide legal, tax or financial advice.
