Deposit fees Everything about order costs and transaction fees. Anyone who trades in securities, foreign exchange or derivatives needs a deposit. This can be referred to as an account for securities. Providers – these are mostly banks or online brokers – sometimes charge fees for keeping a custody account (custody account fees). However, the transaction costs are usually more decisive. For example, you have to pay order fees for every purchase or sale. If these are very high or if you shift your portfolio frequently, this can significantly reduce the return on the securities business. Find out more about the applicable fees here.
What are custody fees?
Banks and other financial service providers such as online brokers charge fees for holding and managing securities for their customers. A distinction is made between custody account fees that are incurred for custody account management (depending on the provider, monthly, quarterly or annually) and fees that are payable per transaction, for example, order fees. These can be calculated both as a lump sum and pro-rata. For small investors with average transaction volumes, custody account management fees of up to a maximum of 50 euros per year are considered appropriate.
Who has to pay custody fees?
A custody account is to securities, foreign exchange and derivatives what a checking account is to money. Unlike money, which you can also have in cash, a depository for securities is essential. You also have to pay custody fees if your custody account is idle, for example, if you sell your shares and stop trading in securities for several weeks. Only when you completely dissolve and close your depot will the fees be eliminated.
Collective Custody vs. Special Custody
There are two types of custody for securities accounts: collective custody (also called collective custody) and special custody (also called wrapper deposit).
With collective custody, securities of the same type and class of different investors are kept in a custody account. When you place your securities in collective custody, you assign your ownership rights to the papers and receive joint ownership rights to the entire portfolio in return. How large these depend on the proportion of your securities in the total portfolio.
We speak of special custody when your securities are kept in safe custody at the custodian bank, clearly separated from the securities of other investors and your own holdings. In this way, you retain ownership of your securities portfolio.
Different Providers – Different Custody Fees
It is definitely worthwhile to compare different banks and online brokers with regard to their custody fees. Custody fees reduce the profit you can make on securities and are the most common reason why the expected returns are not achieved. There are different fee models, even within a financial institution there are often different types of composition of custody fees.
The following factors primarily have an impact on custody fees:
- Number of orders that are placed per year, that is, how often you place an order to buy or sell a certain amount of securities.
- Order volume, i.e. the total value of the securities that you buy / sell on average.
- Depot volume: indicates the total value of the securities that are on average stored and managed in the depot.
- Share of online orders: Many banks charge surcharges for buy and sell orders that are not placed over the Internet.
Online Processing Saves Costs
Even if you don’t want to switch banks, you may still be able to save. Namely, when you have yourself activated for internet banking in the depot area, if your bank offers this. In this case, you can execute orders yourself on your computer and thus save order costs. Stiftung Warentest (7/2015) has calculated that, in the best case, the annual depot costs can be halved in this way.
Banks without Custody Fees
Numerous banks offer custody accounts without account management fees, especially on the Internet. However, this does not mean that the depots are generally cheaper with these providers. Above all, the transaction costs are decisive. These fees and charges can quickly turn a supposed free deposit into a cost trap:
Order fees: They are incurred whenever securities are bought or sold. As a rule, they consist of a basic fee and a percentage of the transaction volume (similar to a commission). A lump sum per order is also possible.
Limit fees: You can specify that a transaction should not be carried out if it would exceed or fall below a certain rate. Many banks charge a fee for this.
Subscription Fees: When looking to buy shares in a company that has just gone public, you will typically have to pay subscription fees. These are also due if the bank has failed to acquire the desired securities
Online brokers and direct banks, in particular, are increasingly offering a so-called “flat fee”, a kind of flat rate for order fees. Instead of billing each order individually, the providers charge a fixed fee regardless of the order volume – similar to the flat rate for telephone contracts. This makes sense for all those investors who trade large amounts of stocks.
Different Fees for Investor Types
- If you buy once and then “let it go”, look out for low custody fees. Transaction costs don’t matter that much because you aren’t buying and selling all the time. A free deposit account is recommended here.
- If you want to buy, but also want to sell now and then, you should also pay attention to low custody account management fees. But also keep an eye on the transaction costs. Otherwise, they may outweigh the profits you’ve made from sales.
- If you want to trade regularly, the lowest possible transaction costs should be your top priority. If you trade in large volumes, you should choose a bank or an online broker who charges order costs at a flat rate instead of a commission basis or offers a “flat fee”.
Which of these strategies is the most promising can hardly be said in general terms. If you follow the “let it go” principle, you run the risk of long-term price losses if you invested in the wrong securities. You should set a limit for yourself as to the market price above which you can no longer accept securities. Too frequent shifting of the custody account, however, leads to high transaction costs, from which your bank or your online broker benefits, but which significantly reduce your return.
Low transaction costs with ETFs
Exchange-traded index funds – also known as Exchange Trades Funds (ETFs) – are passively traded funds that stubbornly replicate a stock index (e.g. the DAX). Risk and effort are low with this type of fund. Since reallocation only has to take place if there are changes in the share index, for example, if a new company enters the DAX, the transaction costs for this type of investment are very manageable.
Further questions and answers about custody fees
1-Can I deduct custody fees for tax purposes?
-Until the introduction of the final withholding tax, custody fees could be deducted from the tax as income-related expenses of up to 51 euros per year. This has not been possible since 2009. Since then, they have been covered as by the saver lump sum. This provides tax-free capital income of up to 801 euros for single persons and 1,602 euros for couples.
2-How do I manage to see the actual return on my portfolio?
-When you invest in securities, there are four possible types of income: interest (for bonds), dividends (for stocks), distributions (for funds) and capital gains. You can see how high these are annually on the income statement and the annual tax certificate. You will normally always receive this deposit statement from your bank at the beginning of the year. All investment income is listed there chronologically. The fees that have become due for the sale of units are also shown there.
3-Can I change providers free of charge in order to save custody fees?
-A depot change can be financially worthwhile. By switching to a cheaper securities account provider, investors can potentially save several hundred euros a year. In addition, many banks attract new customers with special promotions such as starting credit. The procedure when changing depot is less time-consuming than many fear. All you have to do is open a new securities account and then apply for a change using a form.
How fast it takes to transfer securities depends on your bank. You should note that you will not be able to conduct any transactions during this time. The banks are not allowed to charge fees for the change. Many institutes even lure new customers with switching bonuses.
4-What legal regulations are there on the subject of “custody fees”?
-Depot providers such as banks and online brokers are not allowed to charge any fees when changing securities accounts. The Federal Court of Justice has ensured this with two judgments (Az: XI ZR 200/03 and XI ZR 49/03). With the transfer, the providers are merely fulfilling their legal obligation to hand over the papers. The same applies if you want to close your depot.
5-Which is better: branch bank or online broker?
-When deciding between the types of securities accounts, whether you should open a securities account with a branch bank or an online broker, the fees play a major role. Online brokers usually have the edge here. They often offer free custody accounts and are usually cheaper than branch banks when it comes to transaction costs. Stiftung Warentest regularly compares the costs using a sample portfolio. There is always a difference of several hundred euros in fees per year between the most expensive branch bank and the cheapest online broker. With branch banks, an order costs an average of around one percent of the investment amount, with direct banks and online brokers the average transaction costs are only a fraction of that.
However, apart from cost, other factors also play a role. You can take advantage of personal advice from a branch bank, which can be particularly helpful for those new to the stock market with little experience in the financial markets. An online broker, on the other hand, usually only carries out your orders and manages the depot. Branch banks also have the advantage that they usually offer a free clearing account in combination with the deposit. This is necessary in order to offset the costs and income from the securities account. Although many online brokers now also offer a clearing account, there is not always the option of paying interest on the credit balance.
Deposit fees Everything about order costs and transaction fees