You are here: Home - Investing - Experienced Investor - News -

Could you correctly calculate a percentage fee?

Written by: Emma Lunn
Nearly six in 10 (59%) UK adults struggle to work out what a percentage fee equates to in pounds and pence, according to Interactive Investor.

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.

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Autumn Statement: Everything you need to know at a glance

Yesterday Chancellor Jeremy Hunt made his first fiscal statement in the role, outlining a range of tax measure...

End of Help to Buy: 10 alternatives for first-time buyers

The deadline for Help to Buy Equity Loan applications passed on 31 October. If you’re a first-time buyer who...

Moving to an energy prepayment meter: Everything you need to know

As households struggle with the soaring cost of energy, tens of thousands of billpayers are expected to move o...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

DIY investors: 10 common mistakes to avoid

For those without the help and experience of an adviser, here are 10 common DIY investor mistakes to avoid.

Mortgage down-valuations: Tips to avoid pulling out of a house sale

Down-valuations are on the rise. So, what does it mean for home buyers, and what can you do?

Five tips for surviving a bear market mauling

The S&P 500 has slipped into bear market territory and for UK investors, the FTSE 250 is also on the edge. Her...

Money Tips of the Week