How does an ETF savings plan work?

An ETF savings plan allows you to invest regularly in a diversified portfolio of stocks, reducing risk and building wealth over time.

How do I set up an ETF savings plan?

To set up an ETF savings plan, you need to open an ETF custody account with an online broker or bank, select the desired ETFs, and define the amount you want to invest at regular intervals.

What are the advantages of an ETF savings plan?

An ETF savings plan offers advantages such as automated investments, diversification across stocks, lower risk, and the potential for long-term wealth accumulation.

ETF savings plan

Advantages

Automated

Flexible

Low costs

Cost-average effect

Outsmarting the psyche

Disadvantages

Perseverance

Lack of research

Wrong ETF choice

One-time investment makes more sense

Costs of an ETF savings plan

As is well known, passive ETFs are far superior to most active funds in terms of cost. This is due to their simple and transparent structure. However, there are costs that you should be aware of before setting up a savings plan.

Custody fees
Order fees
Spread
ETF fees

Some banks and online brokers charge custody fees for a ETF savings plan account. This can be a fixed annual amount or depend on your deposit volume.

Most banks charge fees for buying and selling an ETF. This also applies to savings plans that are not part of a promotion.

The bid-ask spread of an ETF is the difference between the price at which investors can buy the ETF on the exchange and the (lower) price at which it could be sold on the exchange.

The ETF itself receives a management fee (TER), which is most often represented by the annual amount. For example, if you hold 100 euros over one year in an ETF that has a TER of 0.30%, the ETF provider receives 30 cents.

Possible yield

The most interesting question for many is, of course, the possible yield and profit. Here we look at a few examples that clarify how important it is to start thinking about investing and saving money early. Someone who is already able to save a small amount with a savings plan after completing their education often has an easier time than someone who only starts thinking about the topic shortly before retirement.

Here is an example with the following specifications:

100 euros savings plan instalment per month

5% yield per year

For simplicity, we calculate without taxes, costs and inflation.

3 examples

20 years

40 years

60 years

ETF savings plans are in vogue

ETFs are all the rage in Germany and savings plans are the most popular way to acquire them. It is precisely in times of inflation and zero or negative interest rates, that even risk-averse investors begin looking for alternatives and discover the benefits of ETFs and saving in stocks.

Development of funds invested in ETFs

The chart shows the funds invested in ETFs by retail investors at the participating banks in millions of euros.

Number of ETF savings plans

The chart shows the monthly performance of executed ETF via saving plan.

Source: extraetf.com