ISA investing 2021: pay attention to the charges you pay

Over half of UK adults unable to work out percentage fees, interactive investor research finds.

With the countdown to the ISA deadline fast approaching, choosing the right platform is important, not least because it can make a huge impact over time on the amount you shell out in charges and, ultimately, your take-home investment return.

With flat fee and percentage fees to choose from, investors need to be able to assess which option suits their needs. So, it is worrying that research suggests that over half (59%) of UK adults struggle to work out what a percentage fee equates to in pounds.

The research was conducted by Opinium for interactive investor, the UK’s second-largest direct-to-consumer investment platform and number one flat-fee provider.

When asked to work out 0.5% of £50,000, only half the sample (50%) selected the correct answer of £250.

When asked to hypothetically work out if £9.99 a month (£120 a year) is more than 0.35% on £100,000 over a year, only 41% of the sample of 2,000 UK adults correctly identified that 0.35% was indeed the more expensive option. Some 28% selected the wrong answer of £9.99 a month (£120 a year), and almost a third (31%) simply did not know the answer.

Moira O’Neill, Head of Personal Finance, interactive investor, says: “For over half of UK adults, percentage-fee charging structures are not adding up. This can have massive implications for long-term wealth, making it hard to shop around. At a time of creeping tax, this matters more than ever – because your investments are going to have to work harder. Controlling costs is number one to making that happen.

“Struggling to work out and understand percentages can create difficulties in many areas of life, but especially when it comes to our finances. That applies even more in the world of investing. That’s because the numbers at stake are often much bigger. There’s a big difference between being able to work out what 15% off a new pair of shoes amounts to, and the impact of percentage fees on your investments over the next 10 or even 30 years.

“It’s worth remembering that for smaller pots, percentage fees will tend to be more cost-effective – at least in the outset. But as your wealth grows, percentage fees start to take a bigger share of your pot – and that’s where flat fees can be particularly cost-effective.

“Percentage platform fees mean that as the value of an investment pot rises, so does the charge (and vice versa if the pot size decreases). Even a tiny percentage of a decent-sized sum, like the typical pension pot, soon mounts up. A flat fee structure, in pounds and pence, is far easier to understand as it means that as your investment pot grows, the amount you pay stays the same – what you see is what you get.

“While you cannot control how the market behaves, you can control how much you pay to invest. You often hear about the benefits of compounding in boosting investment returns over the long term, but it also works in reverse when it comes to costs and can seriously erode your wealth over the long term. So, keeping your costs down gives you a definitive edge – even more so when your investment returns are relatively modest.”

Notes to editors

• Opinium conducted research on behalf of interactive investor in an omnibus survey to 2,000 adults carried out between 26 and 28 January 2021.