How to invest for free: How Prosper offers zero costs AND refunds popular fund fees

Investors have been switched on to lower costs in recent years but with one platform it’s possible to invest completely fee-free.

Prosper not only offers fee-free investment accounts and no dealing charges but also refunds costs on some funds, including popular Vanguard, Fidelity and HSBC options.

We explain how this works.

Investment fees

Investment platforms have slashed fees as competition heats up.

The two main charges investors face are account fees and costs for buying and selling. Platforms cutting them – or even sometimes eliminating them – have reduced the cost of investing significantly, but you still usually need to pay underlying fund management fees.

These are the fees that an investment manager charges rather than coming from the platform that’s holding your investments. For example, if you invest in a Vanguard exchange-traded fund, it charges a percentage annually for managing the fund.

You’ll usually see this referred to as the ongoing charges figure or OCF. You don’t pay it directly – instead it comes out of the fund’s total assets, reducing the value of the fund and eating into investment returns.

Even though you can now cut the cost of investment platforms dramatically, these underlying fund fees remain. But Prosper makes it possible to invest at zero cost by refunding fund manager fees too.

Your money can grow faster when it’s not eaten up by excessive fees

What are ongoing charges and what do they cover?

The ongoing charges figure is a measure of the investment manager’s charges and costs for running a fund.

It covers management fees, and other costs such as custody charges, which must be paid to the firm holding the fund’s assets, and regulatory fees paid to the Financial Conduct Authority (FCA).

They’re not easy to reduce, but there are ways you can do so.

The first way to cut fund fees is to simply compare OCFs when choosing investments that fit your goals and strategy – and then pick the most cost-efficient option.

Another method is to check whether an investment platform negotiates reduced ongoing fees with fund houses. Larger platforms can do this to give clients good value and remain competitive, although often these platforms themselves charge higher account fees than rivals.

You should be able to see whether a platform offers savings by using its investment search tool and looking at fund factsheets.

But you can go a step further, as it’s now possible to eliminate them completely on a small selection of funds through investment platform Prosper.

It is disrupting the market by refunding ongoing charges on 32 funds. These include index funds and exchange-traded funds that track shares and bonds from the likes of Fidelity, HSBC and Vanguard.

You’ll find funds that follow specific markets – such as the US, UK or Europe – plus ones that have a more global outlook. All this means you should be able to build a diversified portfolio while paying zero fees, a first among UK investment platforms.

Prosper aims to make fees far simpler to understand

Prosper has over 200 funds available, so you’ll still need to pay an OCF for the majority of investments you buy on the platform. But the platform has been built on cutting the cost of investing and says it does this wherever it can.

Along with charging zero account fees, Prosper doesn’t charge for fund dealing, initial administration costs, or exit fees when you leave the platform.

Keep in mind that there can also be a transaction cost called ‘market spread’ when you trade.

It’s the difference between two prices – how much a buyer pays and how much the seller receives. The money in the middle goes to what is known as market makers, who ensure buyers and sellers can be matched.

Whether a provider charges an additional mark-up on this spread is usually hidden deep in frequently-asked-questions and terms and conditions on its website.

Prosper doesn’t add further charges to the market spread, so does not make money on hidden fees.

Prosper can get investing costs down to zero, if you invest in certain funds

How does Prosper make money?

Prosper is transparent about how it makes money from customers.

Whereas some other platforms pay interest on uninvested funds, Prosper keeps the interest earned on this cash. Considering your money won’t be earning interest, you should be motivated to put your money to work by investing it straight away.

Also Prosper isn’t just an investment platform. It’s a broad wealth management service, offering cash savings accounts and financial guidance, and it makes money on these too.

Prosper keeps some of the interest that banks pay on savings accounts, but its customers always receive the quoted rate advertised. On the flipside, it also offers some boosted rates that bump up the interest rate banks offer.

Prosper’s financial guidance service covers questions about retirement, tax, mortgages, insurance, divorce, inheritance and more. Customers pay hourly fees rather than a percentage of their investments and Prosper takes a cut of these.

What accounts and investments does Prosper offer?

Prosper offers a full range of investment accounts, with no account fees or dealing charges for funds and ETFs.

You can hold a stocks and shares Isa, a self-invested personal pension (Sipp) and a general investment account all for free on the platform.

It accepts transfers of these accounts from other providers.

It has over 200 funds available – a more limited but also more curated range than some other platforms. It is also focused on funds rather than individual shares. It says this gives you the opportunity to build a diversified portfolio quickly and with minimum hassle.

You can also put your cash to work by using Prosper’s cash savings marketplace, with the choice of fixed rate, notice and easy-access accounts.

How to invest for free with Prosper

To take full advantage of Prosper’s zero-fee investing, you need to make sure you follow these steps.

Open a Prosper investment account, fund it and invest your money straight away – to avoid losing interest on uninvested cash, buy and hold one of the funds that Prosper refunds fees on. The full list is below.

> Find out more and open an account at Prosper