The Cheapest Index Funds in the UK: OCFs Compared (and Why 0.1% Matters)

Which Are the Cheapest Index Funds in the UK?

The cheapest UK index funds charge between about 0.02% and 0.15% a year, with single-country trackers (FTSE All-Share, FTSE 100, S&P 500) at the bottom and global all-world funds slightly above. The table lists widely available low-cost options by approximate ongoing charge. Charges are cut regularly, so treat these as a starting point and check each factsheet before buying.

For comparison, the average actively managed UK equity fund still charges around 0.75% to 1% a year. Any of the trackers above costs a fraction of that. For most FIRE investors, the sensible question is not “which fund is cheapest?” but “which cheap fund gives me the diversification I want?” — usually a global tracker. We compare the global options in more depth in the best global index funds in the UK.

What Do OCF, TER and Transaction Costs Actually Mean?

The OCF (ongoing charges figure) is the yearly cost of running the fund, taken automatically from the fund’s value — you never see a bill. A 0.12% OCF on a £10,000 holding costs about £12 a year. ETFs usually quote a TER (total expense ratio), which measures essentially the same thing. Neither figure is the whole story:

• Transaction costs — what the fund pays to buy and sell shares, including stamp duty on UK shares. Usually 0.00%–0.10% for trackers, and listed separately in the costs and charges disclosure.
• Platform fee — what your ISA or SIPP provider charges to hold the fund. Often 0.15%–0.45% a year, or a flat monthly fee. This is frequently the biggest cost.
• Dealing charges and spreads — some platforms charge per trade, and ETFs have a small bid–offer spread. Regular monthly investing is often free.
• FX fees — only relevant if a platform converts pounds into dollars; choose the GBP-traded line of an ETF to avoid them.

The best single measure of a tracker’s true cost is its tracking difference: how far its return lagged (or beat) the index over several years. A fund with a 0.15% OCF that lends out shares efficiently can track as closely as one charging 0.10%. Factsheets and the key information document show this.

How Much Does a 0.1% vs 0.5% Fee Cost Over 30 Years?

Investing £500 a month for 30 years, a 0.1% fee leaves you about £40,600 better off than a 0.5% fee — and £86,800 better off than a 1% fee. The table assumes a 7% annual return before fees, monthly contributions and dividends reinvested. Total paid in is £180,000 in every case.

Two lessons stand out. First, the jump from 0.07% to 0.10% is worth only about £3,100 over three decades — not worth losing sleep over, and rarely worth switching funds for. Second, the jump from a cheap tracker to a typical “all-in” cost of 1% (an active fund plus platform fee) costs more than 14 years of contributions.

Fees matter even more in retirement. At a 4% withdrawal rate, paying 1% in fees means a quarter of your portfolio’s sustainable income goes to fund managers and platforms. On a £750,000 pot, the difference between 0.2% and 1% is £6,000 a year — enough to change your FIRE number by £150,000.

When Do Platform Fees Matter More Than Fund Fees?

Once your pot passes roughly £30,000–£50,000, an uncapped percentage platform fee usually costs more than the fund itself — often several times more. The table shows illustrative total yearly costs: a 0.12% global tracker on two percentage-fee platforms and a flat-fee platform, against a 0.07% global ETF on a no-fee app.

On a £250,000 pot, the 0.45% platform fee alone is £1,125 a year, nearly four times the £300 fund charge. Some percentage platforms cap fees on ETFs and investment trusts but not on OEICs, so holding the ETF version of the same index can cut costs sharply. Our UK investing platform comparison covers the charging models, and an ISA transfer lets you move to a cheaper provider without losing your tax wrapper. Never withdraw and redeposit: the money would count against your £20,000 allowance again (see gov.uk on ISA transfers).

Should You Always Pick the Cheapest Index Fund?

No — pick the cheapest fund that tracks the market you actually want to own. The very cheapest trackers in the UK are single-country funds, and buying one just because it costs 0.02% can leave you badly under-diversified.

• FTSE All-Share at 0.02% — cheap, but the UK is only about 3–4% of global markets. Holding only UK shares is a big concentrated bet; see global vs UK index funds.
• S&P 500 at 0.07% — low cost and strong recent returns, but 100% US and heavily weighted to a handful of tech giants.
• World vs All-World — a 0.12% MSCI World fund excludes emerging markets (around 10% of global markets). A 0.13%–0.15% all-world fund includes them. The 0.01%–0.03% difference is about £1,000–£3,100 over 30 years on £500 a month.
• Multi-asset funds — something like Vanguard LifeStrategy at around 0.22% adds bonds and automatic rebalancing. You pay a little more for convenience.

Two practical rules: choose a low-cost fund once, then stop optimising. Switching between trackers inside an ISA is tax-free, but each switch risks time out of the market and dealing costs, which can easily wipe out a 0.02% saving. And review costs once a year, alongside your ISA top-up in April, rather than chasing every price cut. For more on choosing, read the best index funds for FIRE and how to buy index funds in the UK.

Frequently Asked Questions

Work Out Your Own Numbers

See what lower fees mean for your own plan with these free calculators:

• ISA Millionaire Calculator — try your expected return net of fees (for example 6.9% vs 6.5%) and see how many years sooner a low-cost tracker gets you to £1 million
• FIRE Number Calculator — work out the pot you need, then factor in how much of your withdrawal rate your fees would eat each year

Tax wrappers save even more than low fees: hold your trackers inside a Stocks & Shares ISA so growth and withdrawals are free of tax. Current allowances are on gov.uk.