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Let's say I held £100,000 in Interactive Investor and wish to add £20,000 to my investment each year in monthly instalments. They charge £10/month for a standard account[1] that offers one free trade per month with no percentage based platform fee so on the surface it appears I pay £120 in fees a year.

Existing Investment: £100,000 Annual Platform Fees: 12 * 10 = £120

However there's also a mark-up on the exchange rate when investing in non GBP funds of 1.5%.[1] I invest entirely in US based index funds so I would pay 1.5% on the £20,000 invested and then pay another 1.5% when it is eventually taken out. There's a big assumption the fee stays the same but I can't see any other way of calculating this.

Annual Investment: £20,000 Annual Exchange mark-up Fees: 20,000 * 0.015 * 2 = £600

Do mark-up exchange rates really have this much of an impact?

If I have calculated this correctly why do many reputable sites brokers omit their exchange fee margin from their fee schedule [2] while advertising their less relevant platform fee? Popular comparison sites also fail to mention this cost.[3]

If I have calculated incorrectly or based it on faulty information where have I gone wrong?

[1] https://media-prod.ii.co.uk/s3fs-public/pdfs/rates_and_charges_uk.pdf

[2] https://www.vanguardinvestor.co.uk/what-we-offer/fees-explained

[3] https://www.moneysavingexpert.com/savings/stocks-shares-isas/

  • 1
    Why not just exchange the currency a more efficient way? – quid Jul 19 at 18:15
  • @quid Beyond choosing a broker with lower mark-up fees or getting a job that pays in USD I don't know how to do this? – Declan McKenna Jul 19 at 18:18
  • 2
    @DeclanMcKenna Keep in mind that if you have no source of USD, and I would assume no ultimate need for USD (eg: no intention to retire in the US), then investing in only USD-based investments adds a significant amount of fx risk to your investment portfolio. – Grade 'Eh' Bacon Jul 19 at 20:12
  • @Grade'Eh'Bacon Good point. I'm using Vanguard life strategy funds at present. It does look like GDP versions exist although these too must be converted at some point given 95% of the assets within this and most other global index funds are non-UK based. – Declan McKenna Jul 20 at 8:46

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