What Is the TER of an ETF?
The TER (Total Expense Ratio) is an ETF’s annual ongoing cost ratio, expressed as a percentage. An ETF with a 0.20% TER costs you 0.20% of your invested assets per year — on €10,000 that’s €20. It is charged directly inside the fund, so you never pay it separately. Here’s what it covers and what it doesn’t.
What the TER means
The TER bundles together an ETF’s ongoing costs: management fee, custodian fee, licensing and administration costs. It is not deducted from your account, but taken daily on a pro-rata basis out of the fund’s assets — so it is already reflected in the price. Typical world ETFs sit at 0.10 to 0.20%, while thematic ETFs run from 0.40 to 0.80%.
What the TER does NOT include
- Order costs / spread: your broker’s fee when you buy and the bid-ask spread on the exchange.
- Taxes: German capital gains tax (Abgeltungsteuer) and the advance lump sum (Vorabpauschale) are not part of the TER.
- Transaction costs inside the fund: the fund’s internal trading costs are reported separately (often as “transaction costs”).
How much does the TER eat into your returns?
Over long horizons, a small TER difference makes a surprisingly large dent — thanks to compound interest. The following worked example shows the final value after 30 years on a €10,000 investment and an assumed 7% gross return per year.
Final value after 30 yrs (€10,000, 7% gross, example)
| TER | annual net return | Final value |
|---|---|---|
| 0.10% | 6.90% | ~€73,700 |
| 0.20% | 6.80% | ~€71,700 |
| 0.50% | 6.50% | ~€66,100 |
| 1.50% | 5.50% | ~€49,800 |
A low TER is good, but it isn’t the only criterion. The tracking difference (how closely the ETF matches its index), the fund size, tradability and tax treatment all matter too. An ETF with a marginally higher TER that tracks its index more accurately can come out ahead overall.
FAQ — TER of ETFs
What is the TER of an ETF?
The TER (Total Expense Ratio) is an ETF’s annual total cost ratio, expressed as a percentage. It covers the ongoing costs such as management and custodian fees. With a 0.20% TER you pay 0.20% of your invested value per year — on €10,000 that’s €20. The amount is settled automatically inside the fund, so you never see a separate charge.
Is the TER charged on top of everything else?
No. The TER is not deducted from your account; it is taken daily on a pro-rata basis directly from the fund’s assets. It is therefore already reflected in the ETF’s price. You pay it indirectly through a marginally lower performance.
What is a good TER for an ETF?
For broad world ETFs, 0.10 to 0.20% counts as cheap. Thematic and niche ETFs often sit at 0.40 to 0.80%. For comparison, actively managed funds frequently charge 1.5 to 2.0%. Over long horizons even a small difference makes a big impact because of compound interest.
What is the difference between the TER and the actual costs?
The TER covers the fund’s ongoing costs but not everything: order costs and the spread when you buy, the fund’s internal transaction costs and taxes come on top. The tracking difference ultimately shows how much return was actually lost relative to the index — often more telling than the TER alone.