Meaning of ETF Savings Plans


ETF savings plans are a simple and flexible form of long-term investment. Nevertheless, savers should compare the incidental costs and choose a good time to exit in order to optimize their return.

  • ETF savings plans are flexible: the minimum savings rate can be as low as 15 euros, deposits can be paused and, in contrast to stocks, entry is possible at any time.
  • In order to optimize their returns, investors should compare the underlying funds and the custody and order fees incurred.
  • A favorable exit time is important – ETF savings plans are not suitable for saving a set amount of money at a certain point in time.

How do ETF savings plans work?

An ETF savings plan works very easily. As a prerequisite, investors only need a securities account with a bank. Depending on the provider, savings with index funds are possible with a sum of 15 or 20 euros. Other providers require a minimum rate of 50 euros per month.

In contrast to an insurance contract, savers do not commit themselves to the index funds. If there is not enough money for the installment in a month, the savings plan will not be paid. Once more money is available, the investor can invest more than the originally planned amount.

What is an ETF and what are index funds?

An ETF (means Exchange Traded Fund according to abbreviationfinder) is a fund that is traded on the stock exchange like a share. It combines the advantages of stocks and funds in one product.

ETFs are almost always index funds – that is, they try to replicate a certain share index (for example the DAX) as closely as possible. This means that the fund does not have to be actively managed and there is no fund management fee.

In order to replicate an index, physical ETFs invest in the stocks in the same ratio as they are in the underlying index. Synthetic ETFs, on the other hand, use swaps (derivatives) to replicate the selected stock index as precisely as possible.

Is the starting point for the ETF savings plan important?

Even newbies know: stocks should be bought at the lowest possible price. It’s different with ETF savings plans. They are suitable for long-term investments, i.e. a period of ten or more years. Since only small shares are acquired over a long period of time – at times more expensive and at times cheaper – price fluctuations balance each other out over the entire term. It is therefore possible to start at any time.

Is the exit time important?

Unlike the beginning, investors should carefully consider the moment of exit. If the prices are low by the planned end of the ETF savings plan, it is worth waiting for the index replicated in the index fund to pick up again.

ETFs are a great way to generate good returns without much effort or stock knowledge. However, they are unsuitable if investors expect a fixed amount of money at a certain point in time. In the event of a strong price high, it may also be advisable to terminate the ETF savings plan a little earlier than planned.

How high is the risk?

Like all other equity investments, ETFs are subject to fluctuations in value, so losses are possible. How high the risk is depends in particular on the stock index shown in the index fund. Large stock indices combine many different stocks, which ensures a broad diversification and minimizes the risk for the investor. Index funds that replicate the MSCI World share index or broad-based European share indices such as the MSCI Europe or the Stoxx 600 Europe are recommended. If investors prefer smaller stock indices, it makes sense to use two ETF savings plans. A broad American index such as the S&P 500 can be used to invest in an ETF that tracks the DAX.

Why not an actively managed investment fund?

Index funds are managed passively. Purchases and sales of the values ​​contained therein are based solely on the development of the underlying index. That ensures low costs. The fund companies only withdraw a small amount each year to manage index funds. Actively managed investment funds cause administration costs three to four times as high. These expenses reduce the return.

What additional costs are there?

Investors who want to invest in an ETF savings plan should carefully compare the offers of the various banks. The following costs are incurred for index fund savings:

  • The actual savings rate that flows into the purchase of the fund shares.
  • The annual fee for the deposit at the bank. The depot comparison shows how big the differences are and which banks are cheap .
  • The order fees when buying the units also vary greatly. Some banks even offer ETFs as a savings plan without bank fees.

Investors should not just choose the exact index fund they want. It is also important to check which bank offers the best terms. So far, direct banks have been one step ahead here. They offer a wider choice and often significantly lower fees than local banks and savings banks.

Index certificates as an alternative to index funds?

Index funds offer investors the security of a mutual fund. The invested capital is protected as a special fund should the fund company go bankrupt. The situation is different with index certificates. These are bonds and investors bear the risk of total loss. If the certificate provider goes bankrupt, the invested capital falls into the bankruptcy estate and is paid out to the creditors. Therefore index certificates are not suitable for long-term investments. Unlike ETFs, these products are highly speculative.