How Much Do Platform Fees Really Cost Over Time?
The annual cost of platform fees is a quick and simple way to compare investment providers. However, most investors are investing over many years or even decades, not just a single year.
Over longer time periods, the impact of platform fees becomes more pronounced due to the effect of compounding. Below, we explain how fees can affect portfolio value over time.
Platform fees vs investment returns
Platform fees and investment returns work in opposite directions.
Platform fees are typically deducted from cash held within an investment account or by selling a small portion of investments, which reduces the overall portfolio value. Investment returns, on the other hand, increase the value of the portfolio over time.
Even relatively small differences in fees can have a noticeable effect when compounded over many years.
Example: 0.15% vs 0.45% fees
Consider an investment portfolio worth £100,000.
- A provider charging 0.15% per year would apply annual platform fees of £150
- A provider charging 0.45% per year would apply annual platform fees of £450
Although the higher fee is three times as large, the impact extends beyond the £300 annual difference.
The compounding effect of fees
In a single year, the difference between these fees may appear manageable. However, the true impact becomes clearer over time.
In this example, the investor paying lower fees retains an additional £300 per year within their investment account. This extra amount remains invested and can benefit from future investment returns, compounding alongside the rest of the portfolio.
How fees impact long-term investing
While the difference in annual fees may seem small, the long-term cost comes from the opportunity cost of paying higher fees - money that could otherwise have remained invested.
Assume two investors invest a lump sum of £100,000 for 10 years. Both investment portfolios returns 5% per year. Platform fees are deducted monthly.
- Investor A (0.15% platform fees) will pay £1,933 in fees in total
- Investor B (0.45% platform fees) will pay £5,708 in fees in total
Investor B has paid £3,775 more in fees over the 10 years. However, due to the opportunity cost of paying higher fees, Investor B’s portfolio would be worth £4,797 less than Investor A’s portfolio.
Use our calculator to see the difference
Our Investment Forecast Tool can be used to estimate the long-term impact of platform fees charged by different UK investment providers.
By adjusting factors such as account type, investment amount, time horizon, and expected return, you can see how fees may affect projected portfolio values over time. The results are illustrative and are intended to support fee comparisons, rather than predict future investment performance.
This does not constitute financial advice. Always do your own research.