How much are you pay­ing for your sav­ings?

A large num­ber of peo­ple wrongly think their stocks and shares ISA is free to use

Shares - - MONEY MATTERS -

hen you took out your in­vest­ment ISA, were any fees or charges in­volved?’ That is the ques­tion the Fi­nan­cial Con­duct Au­thor­ity asked over 500 in­vestors who had made an in­vest­ment in the last two years with­out tak­ing reg­u­lated fi­nan­cial ad­vice.

In­cred­i­bly, al­most half (46%) ap­peared to be­lieve their ISA was free, while 7% said they didn’t know. Only 47% of re­spon­dents thought there were any fees or charges to pay.

So let’s dis­pel that myth once and for all. If you are sav­ing in an in­vest­ment ISA, a pen­sion or any other fi­nan­cial prod­uct, it is cer­tainly not free.


The way you are charged will vary de­pend­ing on who you save with and what you do, but it’s ab­so­lutely vi­tal you un­der­stand and are com­fort­able with the price you are pay­ing.

The ef­fect of charges over time can be sig­nif­i­cant and re­duc­ing your costs by even a tiny amount can save thou­sands of pounds.

There will usu­ally be two sets of fees you’ll pay to in­vest your money (as­sum­ing you aren’t tak­ing fi­nan­cial ad­vice).

The first is to the provider or plat­form that ad­min­is­ters your sav­ings. Dif­fer­ent firms charge in dif­fer­ent ways – some will set a fee in pounds and pence; some will charge you a per­cent­age of the as­sets you in­vest with them; and some a com­bi­na­tion of the two.

You could also pay ex­tra fees for ad­di­tional ser­vices, such as en­ter­ing draw­down af­ter age 55.

The sec­ond is to the fund man­ager who in­vests money on your be­half. Some of these will be ‘ac­tive’ man­agers where you pay a pre­mium for the fund se­lec­tor’s stock pick­ing skill, and some will be ‘pas­sive’ where costs are lower as the fund sim­ply tracks an in­dex or bench­mark. In this case, fees are al­ways charged on a per­cent­age ba­sis.

Ac­tive man­agers ar­gue they are worth the ex­tra money be­cause they can po­ten­tially out­per­form an in­dex or bench­mark, al­though this is not guaranteed.


When as­sess­ing fund man­ager costs the On­go­ing Charges Fig­ure (OCF) is prob­a­bly the most ac­cu­rate and eas­ily com­pa­ra­ble mea­sure cur­rently avail­able.

You should be able to find this fig­ure via your provider’s web­site or in the Key Fea­tures Il­lus­tra­tion (KFI) doc­u­ments they send you.

While rea­son­ably com­pre­hen­sive, the OCF doesn’t cover things like the costs associated with buy­ing and sell­ing un­der­ly­ing in­vest­ments (known as ‘trans­ac­tion costs’).

Once you’ve got this in­for­ma­tion, you’ll be in a much bet­ter po­si­tion to as­sess the value for money you’re get­ting from both your provider and your un­der­ly­ing in­vest­ments.

Tom Selby, Se­nior An­a­lyst, AJ Bell

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