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The true cost of “zero"

The hidden ways “zero-fee” accounts make money

“Zero-fee” investment accounts are now widely available at most financial institutions, but there are complex revenue mechanisms that hide beneath the surface. The way providers make money on these accounts is legal, but PensionBee’s findings suggest they may erode balances behind the scenes.

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“Zero-fee” IRAs charge consumers ways most savers will never see. 

The problem

Providers who eliminate visible fees within “zero-fee” IRAs make structural changes that can continue eroding wealth beneath the surface. Instead of trading commissions, custodial fees and account maintenance charges, they shift how cash components of accounts are held and compensated, where trades are routed and how fund building blocks are priced and presented to customers. 
In reality, providers charge savers in six hidden ways: 

Investing involves risk. Product images and projections used are hypothetical, for marketing purposes only, and do not represent actual customer returns.

Cash sweep spreads. Idle cash gets parked in low-yield accounts while the platform pockets most of the interest spread. IRAs are particularly vulnerable, with nearly 30% remaining in cash for at least seven years following a rollover. 

Securities lending revenue. Tradable financial assets within portfolios, known as securities, are loaned to institutional short-sellers for a price. Account holders take on the risk, but the platforms typically retain the majority of the reward. 
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Payment for Order Flow (PFOF). Trades are not directly routed to the available market exchanges, but move through a middleman who pays the platform broker for information on the order flow and profits from resulting trading opportunities. 

Fund building blocks. The expense ratio between an active and passive version of the same fund type can be significant. Making an active selection within a “zero-fee” IRA could raise the cost by as much as 0.87% annually1. Actively traded funds may be appropriate and beneficial, but customers often don’t know the difference and may benefit equally from a passive fund. 

Administrative and service charges. “No platform fees” does not necessarily mean account holders are exempt from flat fees or a wider layer of charges that can attach to an account depending on how a saver uses it: trading outside of core index-tracking building blfocks, requesting a wire transfer, or moving funds. 

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The fine print. "Zero-fee" accounts may be advertised alongside traditional advisory options, blurring which accounts the label actually covers. In other examples, advisory charges — disclosed in the fine print — apply once the balance surpasses a certain threshold. 
‍

How expensive “free” gets:

Even under low-cost assumptions, “zero-fee” accounts result in at least 0.16% to 0.32% of fees charged through structural and operational mechanisms. On the modeled $107,000 balance, this will cost roughly $160–$340 a year. 

‍But PensionBee estimates that typical customer behavior may lead to meaningfully higher costs, possibly around 1.3% annually (or more) including in hidden fees. On the same $107,000 balance this represents around $1,400 per year. ‍

‍The cost of one wrong click. The findings suggest that the price tag for "zero" grows with the margin for error. Within “zero-fee IRAs,” investors can choose investments freely. But these building blocks are not priced the same.

  • The gap between an active and passive version of the same fund can lead to a .87% annual drag — a difference in expense ratio between the .11% low-cost passive fund and the .98% active version.
  • ‍The cost of this mistake may leave investors with $171,0002 in lost returns over a 30-year period. 

Investing involves risk. This image visually represents the data compiled from the associated research and is provided solely for informational and educational purposes.

The problem for retirement savers

America’s retirement system is notoriously complex. For many savers, even the basics are not always clear.

  • Nearly 40% of Americans cannot define a 401(k) account
  • Two-thirds (66%) are not confident in their knowledge of IRAs
  • Forty-one percent of all retirement savers in 401(k) plans, not just those in “zero-fee” accounts, do not know they pay fees

Despite this, more Americans are choosing to self-manage their assets, holding over $18 trillion in IRA assets in 2026, up from $5 trillion in 2010. But the flexibility to trade stocks, bonds, and mutual funds on their own can compound mistakes in regular accounts and leave customers vulnerable to surprise charges in “zero-fee” accounts

  • Too much risk: Individual investors appear to have historically underperformed the broader market’s movement. 
  • Too little risk: Retirement accounts contain a specific mix of funds, stocks, bonds, and cash arguably tailored to the saver’s timeline. However, research by the Employee Benefit Research Institute (EBRI) estimates that nearly a quarter (24%) of IRAs hold 90% cash, likely unintentionally.

The "zero-fee" model quietly rewards expertise and penalizes the lack of it — and because the penalty is invisible, the saver least equipped to catch it is affected the most. 

What savers can do today

America’s retirement system is notoriously complex. For many savers, even the basics are not always clear.

  • Cash sweeps. Pay attention to cash sweeps; if you want to allocate to cash, ensure it is in a product where you reap most of the return, not the platform.
  • Securities lending. Ensure you understand securities lending and see if you can optimize your returns from it. Don't participate if you're not comfortable with the risk.
  • PFOFs. PFOF is likely present for many providers and its presence is hard to control. Consider investments that minimize PFOF.
  • Select your investments carefully. If choosing a more expensive option, ensure you understand the benefits and risks, and how they align with your objectives. Good investments are important as performance may offset small cost differences. 
  • Minimize one-off transaction fees. Read the fine print to see if they exist. 
  • Pay for what you need.  Ensure you are buying the right service with the level of human support you require. Good human support is worth paying for, just make sure you understand what you get and what you pay. 
Download white paper

This white paper is based on independent analysis commissioned by PensionBee and conducted by a Chartered Financial Analyst and Actuary. The research specifically estimates the annual aggregate revenue earned by platform providers and their associates under their lowest charging target-date index tracking asset offerings. PensionBee commissioned the research; the analytical methodology, estimates and conclusions are those of the independent analyst. PensionBee additionally provides commentary and context, specifically separately determining the Hypothetical Customer Behavior charge estimate based on Morningstar statistics and other stated sources. This document is provided for informational purposes only. The figures presented are model estimates based on publicly available data and actuarial assumptions; they are not audited results. Actual costs will vary by account size, product selection, trading activity, and market conditions. Nothing in this document constitutes financial or investment advice. Past performance and cost estimates do not guarantee future outcomes.

Footnotes:
1Reflects the gap between the 0.11% expense ratio of a low-cost passive fund, per PensionBee analysis, and the 0.98% charged by an active fund, per Morningstar's US Fund Fee Study, a difference of 0.87% annually. 
2Assumes a $107,000 starting balance held 30 years at a 7% gross annual return with no further contributions, comparing a fund charging 0.11% annually against one charging 0.98%, a difference of 0.87%. 

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