TER impact calculator: what an ongoing charge costs over time

Two projections run side by side on identical inputs, differing only in the charge. Each year the balance grows at the gross return minus that fund's ongoing charge, and then the year's contribution is added. At the horizon the calculator reports both final values, the gap between them in euros, and that gap as a share of the cheaper fund's total — which is usually the number that lands, because it is not the fee percentage and is often several multiples of it.

The charge is modelled as a haircut on the annual return rather than a daily accrual against assets. Over long horizons the two are very close, but they are not identical and this is the simpler of the two. Contributions land at year end, and the gross return is the same every year, so nothing here captures sequence-of-returns risk. Most importantly the ongoing charge is not the fund's full cost: the measured figure is tracking difference, and it can be lower than the TER, or negative.

Is the TER the full cost of owning the fund?

No, and treating it that way is the common mistake. The TER is published in advance and covers the manager's own charges. Tracking difference is measured after the fact against the index, so it also absorbs withholding tax, securities lending income and the fund's own trading costs. It is the honest number, it is frequently smaller than the TER, and for several Irish-domiciled S&P 500 funds it is negative — they finished ahead of the index they track, after all costs.

Why does a gap of 0.15 percentage points matter this much?

Because it is charged on the balance rather than on the gain. The euro cost grows every year as the portfolio grows, and each year's fee also removes money that would otherwise have compounded for every remaining year. The loss at a long horizon is therefore not the fee times the years — it is meaningfully larger, and the calculator shows it as a share of the final total for exactly that reason.

So is the cheaper fund always the better buy?

Not automatically. If the cheaper fund is not on your broker's commission-free list, or is only listed in a currency your broker charges you to convert into, the transaction costs can swallow the saving — particularly if you buy monthly rather than once. The fee gap is one input; compare it against what the trades actually cost you before switching.

• Tracking difference vs TER: what an ETF really costs
• ETF cost calculator: every annual cost of holding one fund
• Broker break-even: the amount where the cheapest broker changes