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Anyone who wants to open a portfolio to buy index funds has a wide range of providers to choose from. There are significant differences in costs and product selection that consumers should pay attention to.
Many banks, discount brokers and so-called neobrokers now offer trading in index funds. The first step, however, is to open your own securities account. This basically works like a bank account. However, no money is managed in the account, as is the case with a checking account. Instead, it contains securities; these can be stocks or bonds – or index funds, or ETFs (Exchange Traded Funds) for short.
What are ETFs?
ETFs (Exchange Traded Funds) are exchange-traded funds or index funds that reflect the performance of an index such as the DAX or the Dow Jones. If the DAX rises by one percent, the ETF on the DAX would also rise by one percent. A DAX ETF usually contains all 40 companies from the index – such as VW, SAP or Siemens.
ETFs make it possible to invest in a wide range of stocks or other securities at any time – even with small amounts. Investors can buy shares using a savings plan, for example.
ETFs are protected special assets
The securities in the portfolio are managed by the depository bank in a “fiduciary” manner, i.e. in the name of the customer. They are therefore not part of the bank's assets. Even if the bank goes bankrupt, the index funds are protected as so-called legally guaranteed “special assets”, just like conventional investment funds.
Purchases and sales of fund shares, including ETFs, are initially processed through a broker. The broker is simply the connection between the person who wants to buy a share or fund and the market. After the purchase, they are kept in a depository. In most cases, the broker and depository bank are the same company – as is the case with the Commerzbank subsidiary Comdirect.
For some smaller and newer providers, trading is carried out via the broker, but the securities are held at a partner bank. For example, Trade Republic works with the major British bank HSBC, and the securities are held at its German subsidiary, HSBC Germany. Each securities account also has a clearing account where incoming payments are posted.
Opening a securities account is often possible digitally
Opening a securities account is just as easy as opening a normal checking account. In addition to personal identification, which is now often done via video identification using a PC or smartphone, the consumer must also provide information about their professional status and previous experience in stock market transactions.
After that, it takes a few days to open the account until the depot is ready to go. As a customer, you now have a large selection of providers that enable trading in all kinds of securities. On the one hand, there is the classic “house bank”, such as a Volksbank or Sparkasse.
Podcast “Gold & Ashes: Project ETF”
In the second season of “Gold & Ashes” the ARD Finance Department In six episodes, the most important things about investing in ETFs are examined step by step – with background information and expert knowledge. You can hear it in the ARD audio library and everywhere podcasts are available. You can find the individual episodes here.
Episode 1: Why ETFs? (14 August)
Episode 2: Which ETFs are there? (21 August)
Episode 3: Engine Room ETF (28 August)
Episode 4: Risks and criticism of ETFs (September 4)
Episode 5: How do I find the right depot (September 11)
Episode 6: How do I build my ETF portfolio? (September 18)
From the house bank to the discount broker
For around 25 years, securities purchases have also been possible through “discount brokers” such as Consorsbank, Comdirect or Flatex. However, there are no branches here and therefore hardly any personal advice. In return, the discount brokers offer their customers more favorable trading conditions.
The cost differences are perhaps the main distinguishing feature between the two banking sectors, says Thomas Kehl from the consumer and finance portal Finanzfluss: “There is a big difference in costs whether I choose a traditional branch bank, which is still relatively expensive overall because it usually takes a percentage of the invested capital, or the cheaper online brokers or now even neobrokers.”
Neobrokers intensify competition
For several years now, so-called neobrokers have also been offering the purchase and sale of securities. These are relatively new companies whose prices are significantly lower than those of discount brokers. These include Trade Republic and Smartbroker, for example. Neobrokers earn money by ensuring liquidity at certain trading venues by processing customer orders.
And to find the right broker and securities trading bank, you can use a number of current portfolio comparisons. Stiftung Warentest, for example, has such a comparison on its website. The consumer portals Finanztip and Finanzfluss also offer current overviews.
Between 0 and 50 euros fee when purchasing
An example illustrates how large the cost differences can be when buying securities: If you want to buy a share or an ETF for 5,000 euros, you often pay one percent of the purchase price at a traditional branch bank – that is 50 euros.
The same purchase costs only 17.40 euros at a discount broker like ING. They charge 0.25 percent of the purchase price plus a basic fee of 4.90 euros. The same purchase via Trade-Republic or Scalable Capital, a neobroker, costs around 99 cents or is even completely free.
Last but not least, consumers should pay attention to whether there is still a deposit fee for the deposit accounts. Some branch banks charge a percentage of the deposit volume. For 10,000 euros in the deposit account, that would be 20 euros per year at 0.2 percent. However, the vast majority of online banks, discount and neobrokers no longer charge a deposit fee.
Pay attention to fees even with savings plans
Consumers should also be aware of fees when it comes to savings plans. Some banks also charge either a flat fee or a fee based on the trading volume. However, many savings plans – particularly with some discount and neo brokers – can already be saved for free. Many providers offer savings plans with even the smallest amounts, which are then automatically invested in an ETF every month, for example.
If the account opening has been successful, nothing stands in the way of buying or selling ETF shares. If you already know which products you want to invest in, all you have to do is enter the relevant securities identification number (WKN) or the international identification number ISIN into the order form when purchasing. You can then choose to define either the amount you want to invest or the number of units you want to buy.
Experts like Markus Jordan from extraETF recommend entering a limit when buying or selling: “Due to certain situations, the situation can suddenly arise that there is no trading at all on the stock exchange or I make a typo.” For example, if a fund share currently costs 100 euros, a purchase limit of 101 euros ensures that the purchase only takes place if this limit is not exceeded. On the stock exchange, too, at least part of the profit comes from the purchase.
