Investing can generate a return, but it also costs money. Before you start, it's worth understanding what you'll actually be paying for.

What costs will you pay?

When you invest, you'll typically use an app or online platform to access the market. That platform charges fees. Depending on how and where you invest, there may be other costs on top of that. The exact fees you pay depend on three things: how you invest (actively or passively), what you invest in (stocks, bonds, ETFs, etc.), and which platform you use.

Here's an overview of the most common costs:

Transaction costs

These are charged each time you buy or sell an investment. Most platforms charge transaction costs, but not all. Peaks, for example, uses a pricing model where you don't pay transaction costs to Peaks directly, though other costs do apply.

Service costs

This is what you pay the platform for keeping everything running: developing and maintaining the platform, processing transactions, keeping your money secure, producing quarterly and annual reports, and keeping you informed. Think of it as the cost of having somewhere to invest.

Fund costs

These apply if you invest in funds, baskets of stocks, bonds, and other investments that you hold alongside other investors. A well-known type of fund is an ETF. Fund costs don't go to your platform, they go to the parties who manage the funds. 

Spread

Spread is technically part of your transaction costs, since it applies every time you buy or sell. But it doesn't go to your platform: it's the difference between the price at which a market maker is willing to buy an investment and the price at which they're willing to sell it.

Tax

As you can see, investing involves a number of different costs:platforms, fund managers, and market makers all charge a little for what they do. On top of that, you may also owe tax on your investments. Whether you do, and how much, depends on your personal situation. You can learn more about taxes in the How money works course.

Key takeaways

• As an investor, you'll pay costs to your investment platform, fund managers, and market makers.
• The exact fees you pay depend on the choices you make as an investor.
• You may also be required to pay tax on your investments.