Could you correctly calculate a percentage fee?
With the countdown to the ISA deadline approaching, doing the sums correctly is important to work out the charges you’ll be paying on your chosen investment platform.
Some platforms charge flat fees while others charge percentages, so investors need to be able to assess which option is best. Interactive Investor, in conjunction with Opinium, surveyed people to find out if they knew how to do the maths.
But when asked to work out 0.5% of £50,000, only half the sample (50%) selected the correct answer of £250.
When asked to 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 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 of Interactive Investor, said: “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.