Are index funds expensive?
Connor is a journalist with over 10 years' experience who specialises in finance and business news. Based in London, he also works for Sky News and the BBC.
Last updated 25th February 2026
10 min read
Quick verdict: we don’t think index funds are expensive, but there are some important fees you need to consider.
Index funds have long been touted as a hassle-free way of gaining exposure to the stock market, and they've been growing in popularity in the UK thanks to the rise of exchange-traded funds (ETFs).
However, not everyone is a fan.
On the Damien Talks Money YouTube channel, one commenter wrote: "Index funds have high fees and this hits the compound interest you would have earned."
Of course, all investment products come with some sort of cost. From trading fees to stamp duty, expense ratios to bid-ask spreads, there's no such thing as a free lunch.
But the question remains: are index funds expensive?
Let's take a look.
Financial Interest provides guidance, not advice. If you’re unsure about anything, speak with a qualified adviser. When investing, your capital is always at risk. Past performance does not guarantee future results.
How much index funds cost
There are a few different types of fees you'll encounter when investing.
Expense ratios
The first thing to bear in mind is the total expense ratio (TER) associated with an index fund – this is how much it costs to run, represented as a percentage of your investment. This is now more commonly known as the ongoing charge (OCF).
This charge is totally separate from anything charged by your broker, so you'll pay it no matter who you invest with.
They typically amount to a tiny fraction of one percentage point – but even the smallest of fluctuations can have a huge impact on gains over time.
The significant impacts of small percentage differences are demonstrated later in this article.
Broker fees
Next, it's important to examine whether your chosen trading platform charges any fees for having an account with them – and if there's an additional cost when gaining exposure to ETFs, beyond their expense ratio.
Here's a comparison of the fees charged by popular brokers in the UK right now:
| Broker | Platform fee (annual)* | Trading fee |
|---|---|---|
| InvestEngine | 0% | £0 |
| Trading 212 | 0% | £0 |
| Freetrade | 0% | £0 |
| Vanguard | 0.15% (capped at £375) | £0 |
| Hargreaves Lansdown | Up to 0.45% (capped at £45 in ISAs and £200 in SIPPs) | £0 via regular direct debit £11.95 for one-off purchases |
Other things to consider
- There may be other fees charged by brokers that aren't included in the OCF, including charges picked up as a result of buying or selling certain shares
- If you buy a fund that's based abroad, such as the U.S. or France, you may have to pay foreign exchange (FX) fees
- Withholding taxes may also apply if you end up receiving dividends
- Bid-ask spreads apply to ETFs (though not traditional index funds), which reflects the difference between what someone's willing to pay for an ETF, and the price a seller wants. Popular ETFs with high levels of trading volume tend to deliver tighter spreads
- Some platforms give you the option to pay fees by card or direct debit, meaning you won't have to sell your investments and miss out on potential compounding value
- UK shares are subject to 0.5% stamp duty, though this doesn't apply when you're investing in ETFs
- There can be sizable differences in the expense ratios of ETFs tracking exactly the same stock market index – as well as how they perform. For example, the SPDR S&P 500 distributing ETF (SPX5) charges fees of 0.03%, while a comparable product from Vanguard (VUSA) costs 0.07%.
Comparing index fund costs across providers
With additional fees in mind, let's compare how much it would cost to invest in ETFs across the same example providers per year – accounting for a 0.15% total expense ratio, as well as platform charges and dealing fees where applicable.
To keep things simple, we'll stick to GBP (£) funds to avoid FX fees and foreign taxes.
This example scenario compares:
- Investing £100 a month via direct debit
- Investing £10,000 as a lump sum
- The ongoing cost of having £250,000 invested in index funds
| Broker | £100 per month (annual fee) | £10k lump sum (annual fee) | £250k invested (annual fee) |
|---|---|---|---|
| InvestEngine | £1.80 fund fee | £15 fund fee | £375 fund fee |
| Trading 212 | £1.80 fund fee | £15 fund fee | £375 fund fee |
| Freetrade | £1.80 fund fee | £15 fund fee | £375 fund fee |
| Vanguard | £1.80 fund fee + £1.80 platform fee | £15 fund fee + £15 platform fee | £375 fund fee + £375 platform fee |
| Hargreaves Lansdown | £1.80 fund fee + £5.40 platform fee + £0 dealing fees | £15 fund fee + £45 platform fee + £11.95 dealing fee | £375 fund fee + £45 platform fee* |
7% annual growth on a £250,000 portfolio would equal £17,500 in unrealised profit
*Assumes investment inside a stocks & shares ISA.
The effect of fees on compounding
As shown in the table above, fees can differ wildly between brokers.
And there are much more expensive brokers out there too – we decided not to feature them here, though some are highlighted in our ISA comparison.
You can also compare brokers and their fees across different accounts using our comparison tools.
Paying higher fees can put a dent in the amount you gain via compounding returns.
Here's the effect that different fees can have on your overall compounded value, assuming a £10,000 annual investment for 30 years, with a 7% average annual return:
| Annual fee (%) | Fees paid | 30-year portfolio value | Lost portfolio growth due to fees |
|---|---|---|---|
| 0.1% | £10,075 | £991,097 | £19,632 |
| 0.25% | £24,684 | £962,463 | £48,266 |
| 0.5% | £47,746 | £916,831 | £93,898 |
| 0.75% | £69,291 | £873,681 | £137,048 |
| 1% | £89,416 | £832,870 | £177,860 |
So as our original YouTube commenter suggested, fees can have a significant impact on your returns.
However, luckily, no brokers – as far as we know – are out there charging a flat 1% on everything in your account. Some do edge as high as 0.75%, but these tend to be managed ISAs or roboadvisors – basically services where you're paying not just for the platform, but for someone (or an algorithm) to build, run, and rebalance the portfolio for you.
In reality, most fees are capped at a certain amount, or will have fees that change depending on the amount you have invested.
If you shop around and invest intelligently, you can avoid some (or even most) fees. For example, many brokers allow you to avoid trading fees on funds if you set up an ongoing monthly investment.
To put a clear opinion out there: we don't believe investing in index funds is expensive. However, this is just the opinion of Financial Interest – we're a collection of regular Average Joe investors, not qualified financial advisers.
Broker and fund fees are only one part of the equation – it's also important to understand how tax works when you're investing. Read all about that here: How much tax do you pay on index funds in the UK?
How do individual stocks compare?
When it comes to fees, you might be wondering how fund investing compares to buying stocks individually.
If you buy specific shares, you avoid fund management fees entirely – there is no "total expense ratio" to contend with – but you'll have other factors and fees to bear in mind.
For one, your broker might charge a commission based on every trade – this could be in the form of a flat fee, or a percentage of the transaction's value. Building up a big portfolio can make these fees really start to add up.
Buying UK shares also incurs stamp duty of 0.5%.
This means if you're buying £2,000 worth of stock in a FTSE 100 company, that'll come at a cost of £10.
This tax alone is likely to be higher than most fund fees over a 12-month period, but it is a one-off charge that could make more financial sense if you're planning to hold onto these shares for many years.
Costs can end up being higher if you're investing in foreign stock, such as tech giants on Wall Street. And even if you're with a platform that promises zero commission, there will still be some fees to pay.
For example, FINRA charges a trading activity fee of $0.000166 per share you buy. Because it's rounded up to the nearest penny, the minimum you'll pay is $0.01 – and there's a cap for larger transactions of $8.30. This cash goes towards regulating brokerage firms, and has risen quite a bit in recent years.
Meanwhile, there's also a fee charged by the Securities and Exchange Commission (SEC) whenever you sell US stock – and that's surged substantially as of May 2024. It used to come in at 0.0008% of the value of a transaction, but it's now been set at 0.00278%. Very quick maths tells me that's a jump of 247.5%.
Another factor worth watching for is foreign exchange (FX) fees, which are charged whenever your money's being converted from pounds into foreign currency – usually euros and dollars for investors.
Here's how they compare:
| Provider | FX fees |
|---|---|
| Trading 212 | 0.15% |
| Freetrade | 0.99% (on basic free plan) |
| Hargreaves Lansdown | 1% on first £5,000 0.75% from £5,001 to £10,000 0.5% from £10,001 to £20,000 0.25% from £20,001 onwards |
This means that buying £5,000 worth of shares priced in USD ($) could range anywhere from £7.50 to £50 via the brokers listed.
One particular area where index funds have a distinct advantage, both in terms of cost and convenience, relates to tracking a particular index.
Whether it's the FTSE 100 or the S&P 500, you can effortlessly gain exposure to hundreds of different companies without paying transaction fees for each one.
And on top of that, if you're planning to invest over a long time horizon like 30 years, how would you know which individual shares are even still going to be around in 2054, let alone which ones will have surged in price?
What are the most expensive index funds?
As we've already covered, what you actually pay to invest in index funds depends heavily on your broker.
But if we strip all that away – assume a broker with no platform or trading fees, buying funds traded in GBP – and look only at ongoing charges, which index funds tend to be the priciest?
In broad terms, the most expensive index funds are usually the most specialised or thematic.
Rather than tracking a broad, rules-based market like the FTSE All-Share or the S&P 500, these funds follow narrower, more complex indexes. That might mean screening companies against specific criteria, regularly rebalancing holdings, or tracking less liquid assets.
As a result, they require more oversight and more frequent trading, and that extra complexity shows up in the ongoing charge.
Typical examples include thematic ETFs focused on areas like cybersecurity, artificial intelligence, or clean energy, as well as funds tracking more complex commodities or niche parts of the market.
In other words: if a fund sounds exciting, it probably isn't cheap.
What are the cheapest index funds?
Pretty much the mirror image of the expensive ones.
The cheapest index funds are the boring workhorses of the investing world. They don't chase themes, make clever judgements, or try to be interesting. They just track big, well-known markets as simply and cheaply as possible.
Think broad, vanilla exposure: UK equity trackers like the FTSE All-Share, global funds tracking the MSCI World or FTSE Developed World, and no-frills US trackers following the S&P 500.
Verdict
Index funds can be more expensive than buying individual shares in some situations, and they can be cheaper in others.
Some specialised funds charge very high total expense ratios – sometimes even exceeding 1% – so keep a watchful eye out for those.
Overall, with all things considered, we'd say index funds are generally not that expensive.
Compared to actively managed funds, they're certainly a lot cheaper than some of the other less passive options out there.
Financial Interest provides guidance, not advice. If you’re unsure about anything, speak with a qualified adviser. When investing, your capital is always at risk. Past performance does not guarantee future results.
