Brokerage Account
Why an ETF Investor Needs a Securities Account
A securities account, or simply a “Depot” (in German), is an account used to store securities. “Depot” comes from French and means storage.
In your securities account, you can store ETFs, index funds, stocks, bonds, or derivatives.
Nowadays, you can open a securities account not only with traditional banks but also with online brokers or neobrokers to trade financial products.
Difference between a bank and a broker:
- Banks have a banking license.
- Brokers cannot maintain accounts themselves. Therefore, you always receive your securities account in combination with a settlement account from the partner bank of the provider.
In both cases, your money is secured, even in the event of insolvency.
Brokers issue securities accounts.
- In Germany, brokers must be approved by the financial authority.
- They are the interface between you as an investor and the financial market, enabling you to access financial products. Only with a securities account can you trade ETFs.
Nowadays, most securities accounts are online. Even though the institutions now use digital systems, your securities are secure: The provider manages your securities in a fiduciary capacity. Even if the broker goes bankrupt, you will still receive your shares.
Each securities account has a reference account, from which the amounts you want to use for securities trading are debited or deposited.
- You can transfer profits to your linked checking or settlement account.
- Earnings from ETFs, dividends, etc., will be paid out by the broker to your reference account.
- For each of these transactions, you will find a receipt in your broker’s overview with the exact price at the time of buying or selling the security.
You can easily execute and adjust ETF savings plans or one-time investments, or sell shares via your broker’s website or app.
Costs You Will Incur
Although the fees for trading ETFs have generally decreased, you can save a lot of money by carefully comparing brokers. There are significant differences between providers.
Here is an overview of the cost models:
Account maintenance fees
There are account maintenance fees – this is either a fixed amount charged monthly or annually, or a specific percentage of the account balance, which can become expensive for large accounts.
Many accounts are even free: either for the first few months or permanently. Others have conditions that you must meet to keep them free, such as maintaining a Comdirect checking account or having an active savings plan.
Transaction Ccsts / Oder fees
Transaction costs are charged per order. These can vary significantly, so you should definitely compare providers to find the best solution for your investment strategy.
- Some providers charge a certain percentage per order, such as 0.2%. For one-time ETF investments with larger amounts, fees can add up quickly! -> In this case, a provider with flat fees per order might be more suitable.
- Hybrid model: you pay a small amount per order plus a percentage of the fee
Trading Venue
In addition to order fees, some brokers charge a trading venue fee, which depends on where the trade is executed.
- The cheapest options are electronic trading platforms like Gettex, Tradegate, or Quotrix.
- Traditional stock exchanges, such as those in Frankfurt or Stuttgart, tend to have higher fees.
- The largest electronic trading venue in Germany is Xetra, handling around 90% of stock trading, but it has relatively high fees. Trading on foreign exchanges usually incurs even higher fees.
Savings plan fees
If you regularly invest in an ETF or stock through a savings plan, pay attention to the associated costs. Many neo-brokers offer free savings plans.
###Spread
The spread is the difference between the buying and selling price of a security.
- Markets with high trading volumes generally have lower spreads.
Xetra is the leading exchange for German stocks, and while it has higher order fees, it may be worthwhile for large trades due to its lower spreads.
Spreads are generally lowest when the main exchange is open. -> So it’s best to trade between Monday and Friday, 9:00 AM – 5:30 PM. Trading outside these hours results in higher spreads, increasing your costs.
Additional Services
Some services, such as registering for shareholder meetings or being listed in the shareholder register, often come with extra fees.
How to Find the Right Securities Account
Question you should specifically consider when selected a securities account:
What type of securities are you trading?
How will you invest in ETFs: as a lump sum or via a savings plan?
How high is your savings rate in the latter case? Depending on this, different providers might be more suitable for you.
- Because their fees vary and
- Because some providers offer free savings plans or allow you to start with small savings rates from around €25.
Which ETFs do you want to invest in?
Do you prefer trading on your smartphone or desktop?
Joint or individual account?
Criteria for a good securities account
Manage the account yourself?
If you want to make your own investment decisions, online brokers are the right choice.
If you’re unsure, you can also open an account through a bank advisor. However, this usually comes with higher fees, and the advisor will tend to recommend more expensive, actively managed funds.
Which securities? How often?
What costs are involved?
In addition to the order fees you pay with each purchase and sale, some brokers also charge account maintenance fees. Make sure to check the provider’s website so you don’t get any unpleasant surprises! All the information can be found in the “Price and Service Directory.”
Nowadays, many online providers offer accounts with no maintenance fees. The strong competition among numerous providers has made high fees uncommon. However, there is still potential for savings.
Check out account comparison to get an overview of the fees for the most well-known German brokers.
Security
It occasionally happens that a financial institution goes bankrupt. However, as an investor, this should not be a cause for panic: The assets in ETFs are considered “special assets” in Germany.
The Capital Investment Code (KAGB) ensures that fund providers must manage their investors’ assets separately from their own.
In the event of the ETF provider’s bankruptcy, the insolvency administrator does not have access to your ETF assets. This is how the securities in your account are protected.
There is deposit protection for uninvested money in your linked cash account. This protects assets up to €100,000 per financial institution and per person.
- In other words, if you have more than €100,000 in a cash account, in the event of a bank insolvency, you are guaranteed to get €100,000 back.
- Depending on the insolvency situation and additional protective mechanisms, higher amounts may also be refunded.
Overview of the protection of securities and bank deposits:
| Insolvency ETF Provider | Insolvency Bank | |
|---|---|---|
| Protection | ETF assets are special assets | Protection for (cash) deposits like savings, fixed deposits, and checking accounts: Protection for securities such as ETFs: Special assets; do not belong to the bank |
| Consequence in the event of insolvency | Liquidation of the ETF and cash payout to investors |
Choosing a brokerage account is not the most important thing
You can’t go too wrong by choosing one of the German online or neo-brokers. Ultimately, it comes down to your usage preferences:
- Do you prefer to trade via app or on the desktop?
- Do you want personal advice and are willing to pay for it?
Also, switching brokers is generally quite simple. Brokers in Germany are required to offer you a transfer of your account and cover the costs.
- This is not always the case with foreign providers – for example, DeGiro charges for transfers.
The transfer process is straightforward: You request an account transfer from your broker, sign the application, and wait a few days. This keeps you flexible – your choice of brokerage provider is not set in stone.
How to Get Your Securities Account
Open a securities account
Opening a securities account is easy and takes only 10-15 minutes: Choose the offer that best suits your needs and follow the instructions on the provider’s website.
- The account opening is usually free; some providers offer bonus programs or other benefits.
- Brokers are legally required to verify your identity. Most providers use video identification via webcam or smartphone for this.
Deposit money
Before you can buy ETFs, you need to deposit money into your reference account. Depending on the provider, you will receive the account details by mail and may have to wait a few days. Transfers can also take up to two days, depending on the financial institution. After that, you can use the money in your settlement account to purchase securities.
Answer securities trading questionnaire
Before placing your first orders, your broker will ask you if you have experience in trading securities. This is the so-called securities trading questionnaire, which providers in Germany are legally required to complete. You can select different asset classes. If you have no prior experience with ETFs, you will be asked for confirmation when executing your savings plan or lump sum investment.