Investment fees and charges
Investment charges can vary widely depending on the type of investment. This section gives you the right questions to ask and shows the fees and charges for different investment products, including:
Charges on tracker bonds
Before you sign an application form for a tracker bond, you will get a ‘key features’ document which sets out the total amount that will be taken in charges and the percentage of the investment that the charges account for.
Comparing tracker bonds
|Investment amount||How much do you need to invest?|
|Investment term/access to your money||How long will you have to leave your money invested? You usually cannot withdraw your money until the bond ‘matures’ (is due for payment), otherwise you will lose money.|
|Return||How much of the growth of the stock market could the bond earn? Is there a limit to the amount of growth you will earn or is there any minimum return promised? Compare the return with what you might get if you put the same amount on deposit over the same term.|
|Guarantees||Does the bond offer 100% capital security?
If not, how much of your capital may be at risk? Remember, less capital security may mean the bond offers higher potential growth.
Charges on unit-linked funds
It is important to examine the fees and charges for these products. They can significantly reduce the value of your investment, especially the charges that are ongoing and are based on a percentage of your investment. These have a bigger impact because the charge itself gets bigger the more your investment grows.
|For example, a 0.25% charge on €10,000 will cost you €25 but if your investment grows to €15,000, the same 0.25% charge will cost you €37.50|
Different investments products may have higher charges, but this is no reflection on how well they will perform. Try to avoid investment products with high charges as there may be little or no difference between them and those with low charges.
With many different charges, it can be difficult to understand what they mean for your investment. One way to compare products is to look at the ‘reduction in yield’ (or RIY).
The charges that may apply to unit-linked funds are:
- Allocation rate – the percentage of your investment that is used to buy units in a fund. A 98% allocation rate means that for every €100 you invest, the investment company invests €98 and takes €2 as a charge.
- Bid/offer spread – the difference between the price to buy and sell units in a fund. If the difference is 5%, it means that €5 out of every €100 used to buy units is taken off as a charge. As a result, the value of a €100 investment would fall to €95.
- Monthly policy fee – this is usually a fixed amount charged each month, typically ranging from €3 to €6. It is taken either directly from your investment or from the value of your fund.
- Product management fee – this is sometimes charged for ongoing advice from a financial advisor or stockbroker. It may be 1% to 2% of the value of your fund each year.
- Yearly fund management fee – this is a set percentage of the value of your investment fund that is taken by the provider each year to pay for managing the fund and other general costs. It typically ranges from 0.75% to 1.5% of the value of your fund.
- Early encashment charge – this is a fee you may be charged for any money you withdraw in the first few years. Typically, it varies from 1% to 5%. This charge is highest for withdrawals in the first year and reduces every year after that.
Remember, if you are being charged a percentage of the fund value, the charges will increase as the investment fund grows.
The usual way to buy and sell shares is through a stockbroker. The charges that apply to buying and selling shares this way are:
- Stockbroker fees – these vary depending on the type of service you use. If your stockbroker just acts on your instruction without giving you advice – an ‘execution-only’ service, your fees will usually be lower. You will have to pay higher fees for a ‘discretionary’ service, where the broker makes certain investment decisions for you or for an ‘advisory’ service, where they give you advice on which shares to buy or sell.
- Stockbroker commission – the typical commission rate for buying and selling shares is 1.5% to 2% of the purchase or sale value, or a minimum flat fee.
Charges and how these charges will be applied will vary between different stockbrokers. If you are buying shares, check out the levels of charges and ask for a list of all charges. Your stockbroker is obliged to give you this information if you request it. You should also check out charges for online stockbroking, as you may get a better deal.
Tax on investment growth
You will generally be charged an exit tax on unit-linked funds, with-profit funds and tracker bonds. This is a Government tax, deducted by the investment or life assurance company, charged on any growth in your investment when you withdraw all or part of it, or on certain anniversary dates, for example every seven years. If your investment has not grown in value, no tax is charged.