Charges associated with investing can make a huge impact on the value of your pot over the long term. Even though charges might seem small, lots of small charges eat into your gains or amplify your losses, particularly as your funds grow into significant sums.
The more money you have, the more important keeping your charges under control becomes.
Charges are an important consideration when picking your platform as each company has a slightly different model. There are a number of different charging mechanisms that make up the cost of investing. These are:
The platform you choose to invest through (i.e. Hargreaves Lansdown, Fidelity etc) will usually charge a fee for holding your funds. This is unlike a savings account where your money is held free of charge. Platform charges vary from a fixed fee to a percentage per year of the value of your account.
Once you’ve selected your platform, you may choose to invest in funds. Those funds usually levy a fee for investing with them. This covers the running costs of the fund. Fund fees are deducted if the fund goes up or down and are usually a percentage of your investment in the fund. Fees can range anywhere from 0.1% to 1%+.
There is usually a charge ranging between £0 and £15 every time you buy or sell a fund or stock. Some platforms offer fee-free trading like Freetrade or Trading 212 and some include a number of free trades per month like Interactive Investor. If you plan on buying/selling regularly, these can soon add up, so look for a low or fixed rate fee.
Transfer out fee
You should review your platforms costs each year and gauge them against the competition. You can move your Stocks and Shares ISA between platforms if you find a better fit. Just be aware, that doing so can carry a fee that should be calculated for. Some platforms don’t charge anything like Hargreaves Lansdown. Others charge based on the number of funds you are invested in, which could add up.
It’s important to know the charges for all of these aspects when comparing or opening new Stocks and Shares ISA. The ‘art’ comes in knowing that while some platform fees may be more expensive, the fund fees or other charges within them are significantly less, making them cheaper overall.
Here’s our guide on How to Choose the Best Investment Platform for you which will walk you through all the considerations including charges.