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How to reduce costs in securities deposits

Anyone who wants to build up assets through fund savings needs a securities account. Consumers are faced with a number of costs and fees. These are burdens that can be significantly reduced.

Andreas Braun

The performance of a fund or share over a long period of savings is the most important factor in wealth creation. But this wealth can be severely burdened by costs – within the portfolio and when selecting fund products.

A number of costs and fees are involved when using a securities account. This starts with the fee that the bank or broker charges for the account itself. There are very different models here, as Markus Jordan from the ETF investor portal extraETF explains: “The big cost differences lie in whether I choose a traditional branch bank, which is still relatively expensive overall because it usually charges a percentage of the invested capital. Or I choose the cheaper online brokers or now even the 'neobrokers', which are a bit cheaper again.”

Deposit fee as the first cost factor

While many traditional “house banks” charge such a fee based on the invested capital at around 0.2 percent per year, many direct banks are satisfied with a few euros per month or quarter, or they often offer their deposit accounts completely free of charge. However, direct banks usually do not offer direct customer advice, as many consumers are used to from their branch bank.

Anyone who reduces their deposit fees to a minimum by choosing a suitable bank still has to deal with additional costs. And this happens on several levels, as Thomas Kehl from the consumer portal Finanzfluss, which also offers its own deposit comparison, explains: “Overall, when you invest in securities, there are two costs. Firstly, the running costs, i.e. the costs of the fund itself, and the transaction costs. Transaction costs are what the broker charges for a purchase or sale. This can either be a fixed fee or a percentage of the invested capital.”

Classic funds burdened with higher fees

The fees that an investment fund itself charges are not billed by the bank, but are automatically deducted from the fund's assets. As a buyer of a fund, you don't notice this directly, but the price, i.e. the fund's share price, increases more slowly. How high these fund fees are depends primarily on the type of product. Those who prefer classic, so-called “actively managed” funds pay significantly more.

Index funds, so-called ETFs (Exchange Traded Funds), which simply replicate an index such as the DAX or the EuroStoxx 50, are cheaper, says Kehl: “The costs of actively managed classic funds are sometimes ten times higher than those of ETFs. This is because there is one manager who manages one fund, whereas with ETFs one manager is responsible for several hundred ETFs because they simply work based on rules.”

The costs for a conventional equity fund are usually between one and two percent per year. For index funds, however, the fee is only between 0.1 and 0.3 percent per year. And this despite the fact that the performance (without costs) of comparable ETFs is statistically no worse than that of classic funds.

Every purchase and sale costs – usually

Not only the fund itself, but also the “transactions” cost money. Every time a fund share is bought and sold, a fee is charged by the bank or broker to process the purchases and sales. Here, too, there are drastic cost differences for investors. Some branch banks add a fee of one percent of the purchase price. This means that a fund purchase worth 5,000 euros incurs a fee of 50 euros.

Many direct banks only charge a fraction of that. In the case of a 5,000 euro order, it's around 10 to 20 euros. And neobrokers sometimes manage to do it for free. Expert Markus Jordan explains how this works: “Neobrokers have the huge advantage that their bank processing software, which is used to process securities transactions, is state-of-the-art. And these new software systems enable neobrokers to offer very favorable conditions.” Thanks to the lean cost structures of this new generation of banks, the buy or sell order mentioned in the example often costs just one euro, or it is even executed completely free of charge.

Small Savings plan fees – big impact

However, a securities bank does not only charge fees for a one-off purchase or sale of a fund share or stock. Regular savings plan installments are also usually subject to a fee. Either a fixed amount, such as 1.50 euros per savings installment, is due. Or the bank charges a percentage, such as one percent of the savings installment.

Fixed fees are a major burden, especially for small savings rates. For a monthly savings rate of 50 euros, 1.50 euros in fees means a cost burden of three percent. For long-term wealth accumulation, this is a disadvantage that can cost several thousand euros in the long term. A look at the terms and conditions of the respective bank can prevent this disadvantage. Many direct banks and neobrokers now offer free savings in certain funds and ETFs. However, some of the “free” promotions are limited in time. Fund savers should inform themselves about this regularly if they do not want to fall into a cost trap.

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