ETF calculator — methodology

A commission is a smaller contribution

order      = monthly amount × months per order
commission = min(dealing charge, order)      — never more than the order itself
invested   = max(0, order − dealing charge)  — never negative

The projection engine models three charges — an ongoing charge that reduces the rate, a fee on the value, and a flat annual fee — and no charge on contributions. It does not need one: money taken out of a purchase before it is made is simply less money going in, so the contribution handed to the engine is the net figure and the engine is untouched.

The consequence is the point of the page. Every other charge modelled anywhere on this site is levied on a balance. This one is levied on a cash flow, which means it never compounds and never appears in the schedule’s own reconciliation. A £9.95 commission on a £250 purchase is a charge of almost 4% on every pound invested, taken up front, against an ongoing charge that might be 0.07% a year — two numbers that look comparable, are not, and are routinely compared.

A period that buys nothing pays no commission, and a commission larger than the order takes the order and no more, so nothing is invested rather than something negative. Both are stated on the page rather than resolved silently.

Why every order lands at the end of its period

This calculator fixes end-of-period contribution timing, which is unusual on this site and is what makes its central comparison honest.

The comparison is buy monthly, or buy less often on more money? — because a quarterly order pays one commission where three monthly orders pay three. But money destined for a quarterly purchase does not disappear and reappear invested at the start of the quarter; it sits in cash and goes in at the end. Under start-of-period timing the quarterly buyer would have been credited with three months of growth on money they had not yet spent, and the table would have favoured buying less often for a reason that is not true — in the same direction as the page’s own finding, which is the direction an author must be most careful in.

With end-of-period timing the comparison is exact: a monthly buyer invests each month’s money at that month’s end, a quarterly buyer invests three months’ money at the quarter’s end, and the engine charges the difference automatically. The timing is fixed rather than offered, because a reader flipping it would rig the comparison without being told.

Waiting cash is modelled as earning nothing. If yours earns interest, buying less often is better than the table shows, so those rows are a floor rather than an answer.

The ongoing charge and the custody fee

ongoing charge  net = (1 + r) × (1 − ocf) − 1        a drag on the return
custody fee     fee = balance × (rate ÷ periods)     deducted from the pot, capped per year

The ongoing charge is levied inside the fund and never appears as a deduction, because the unit price is struck after it. Note the multiplication rather than a subtraction: expanded it is r − ocf − r·ocf, and the missing cross term is the charge levied on the year’s own growth, which compounds into roughly a 2% overstatement of a pot over forty years if it is dropped.

The custody fee divides nominally across the year’s periods, because a platform’s published rate is a tariff rather than a compounding return. Where a cap applies it resets at each year boundary and is worth nothing until the pot is large enough for the uncapped fee to exceed it — which is precisely the case where quoting a percentage tells a large holding nothing at all. Caps on ETFs and shares are common in the UK while the same platform charges funds uncapped, and that is a setting on this page rather than a fact about any provider.

Accumulating against distributing, and the tax

Before costs and tax the two share classes are the same investment: one reinvests income inside the fund, the other pays it out for you to reinvest, and reinvested at the same price the outcome is identical. This calculator models the accumulating case, with the growth rate treated as a total return. The practical difference is friction — a distribution reinvested by hand is another order, and on this model another commission.

Held outside an ISA or a pension, the income is taxable in the year it arises, and that includes an accumulating class, where nothing is paid out. A gain on disposal is separately chargeable. This calculator applies none of it and every figure it shows is gross.

That division is deliberate. The stocks and shares ISA calculator already models exactly this — the dividend tax year by year with the allowance applied as the annual nil-rate band it is, and the capital gains tax on disposal stacked on the reader’s income — against figures that carry a verification stamp. Two implementations of one calculation is how a codebase ends up with the same arithmetic written seven times, and two pages answering one question is two pages competing for one query.

Rounding, and why the table adds up

Every figure is rounded to whole pence at each period boundary, so each row satisfies opening + invested + growth − custody fee = closing exactly rather than approximately. The commission sits beside that identity rather than inside it, because it never reached the pot — folding it in would break every row, which is the clearest possible demonstration that it is a different kind of charge.

What it does not model

• The bid-offer spread. An ETF is bought at the offer and sold at the bid, and on a thinly traded product that gap is a real cost on every order. It is not here.
• Foreign exchange charges. An ETF priced in dollars bought with sterling usually carries a conversion charge on each order, and exposes the holder to the exchange rate for the whole holding period. The S&P 500 calculator models the currency exposure; the conversion charge is nowhere on this site.
• Fund transaction costs — what the fund itself pays to trade, which is disclosed separately from the ongoing charge and is not in it.
• Tax of any kind, including the treatment described above, and the separate question of a fund without UK reporting status, where a gain on disposal is charged as income rather than as a gain.
• Tiered charging and exit fees. One rate for the whole term.
• Sequence of returns. The order returns arrive in changes the outcome, and a constant rate has no order.