ETF savings plan or fund savings plan: which is better?

Paying in regular contributions – for example, every month – to a fund or ETF savings plan is a good way to build up savings for retirement or a major purchase. These savings plans are also an attractive alternative to savings accounts, where interest rates are lower than inflation, causing your savings to lose value. Although the value of assets in ETF and fund savings plans can fluctuate, the return on these plans is usually significantly higher in the long run than on a savings account. And in contrast to life insurance, you retain flexibility: you can adjust your deposits to suit your current financial circumstances and access the capital at any time.

Many providers only allow savers to invest in their own investment products. If the savings plan provider doesn't offer any products of its own, the choice is often limited to the products of a partner who, in return, pays the savings plan provider a commission (known as a retrocession).

A fund savings plan may charge annual costs of 2% of more

Deposits into fund savings plans are usually channelled into actively managed – and therefore expensive – investment funds. Managers of active funds aim to outperform the market. Very few succeed in doing so on a regular basis.

ETFs, on the other hand, can dispense with active management. They aim to track a stock market index – such as the MSCI World Index – as closely as possible and are therefore generally significantly cheaper than actively managed funds. The total expense ratio (TER) is often less than 0.5%; for active funds, it's usually between 1% and 2% per year. 

In addition to these costs, which are charged annually to the fund's assets by the fund or ETF provider, savings plan providers also charge their own fees. These may include management fees, custody fees for the safekeeping of the fund units and commissions for buying and selling the fund units. Issue and redemption fees may also apply in some cases if savers wish to reallocate their units to another fund. All things considered, a fund savings plan can quickly generate costs of 2% or more of the total amount invested – in annual fees alone.

More money thanks to lower fees

The cost benefits make an ETF savings plan worthwhile. For example: a 50-year-old man pays CHF 50,000 into both an ETF savings plan and a fund savings plan. In the 15 years leading up to retirement, he'll pay a further CHF 10,000 into each plan each year. It's assumed that both savings plans achieve an average annual return of 4.5% before fees. If the total fees amount to 2% per year for the fund savings plan and 0.8% for the ETF savings plan, the ETF savings plan will yield a higher net return of 3.7%. When he retires, the accumulated assets in his ETF savings plan will be around CHF 33,000 higher than in the fund savings plan (see table).

Grow your wealth cost-effectively with VZ's ETF savings plan

Do you want to build wealth at a reasonable price? But are you overwhelmed by the prospect of choosing the right investment products yourself? Saving and investing with ETFs at VZ is the right choice for you. You'll benefit from the following:

Our independence: VZ selects the best ETFs for you from the range of approximately 1,900 ETFs traded on SIX Swiss Exchange. With VZ as your partner, you can be sure that all securities are analysed and valued free of vested interests. VZ automatically credits any retrocessions from ETF providers to your account on a quarterly basis.

Our individual approach: At VZ, five different investment strategies are available. VZ determines the right strategy for you based on your financial means and your experience with securities. Experienced investors can also build their own portfolio themselves.

Our flexibility: You decide how much you invest and how often. It's possible to redeem ETFs free of charge with effect at the end of the month. You can log in to your custody account at any time and reallocate your investments with just a few clicks.

Our transparency: You have online access to daily reports with information on the net return and portfolio structure.