Investment Fund Accounts in Switzerland Explained

Many Swiss banks offer investment fund accounts. These are sometimes simply referred to as fund accounts.

What is an investment fund account?

An investment fund account is a bank account which you can deposit money into or withdraw money from. Money which you deposit into an investment account is typically invested into one or more mutual funds or ETFs automatically. You do not have to invest the money or take any action yourself. The bank handles this for you.

Swiss investment fund accounts are typically denominated by the Swiss francs, but some Swiss banks also offer accounts denominated by euros, US dollars and other currencies.

Many banks use the term investment fund account synonymously with the much more widely-used term fund savings plan. Some banks use investment fund accounts as the basis for fund savings plans, but also let you use the account for one-off fund investments. You can find detailed information and a useful comparison in the guide to Swiss fund savings plans.

How do investment fund accounts work?

When you open an investment fund account, you normally give your bank a power of attorney to invest the money which you place in that account into funds on your behalf, on an ongoing basis.

The bank uses the money in your investment fund account to buy shares in funds. The fund shares which the bank buys for you are held in a separate custody account which is also in your name.

Your capital remains invested in the funds until you request a withdrawal. When you request a withdrawal, the bank sells fund shares equal to the amount of money you want to withdraw. The money is placed in your investment fund account, and you can withdraw or transfer it as you would with other bank accounts.

What is the difference between an investment fund account and an investment account?

In Switzerland the term investment account is generally used for savings accounts which have stricter withdrawal conditions and/or longer notice periods than standard savings accounts. In exchange for the tighter limits on withdrawals, investment accounts typically have higher interest rates than regular savings accounts from the same bank.

What are the advantages of using investment fund accounts?

Historically, the stock market has delivered higher returns than savings accounts over the long term, as shown by the historical interest and return calculator on moneyland.ch. If you have savings which you plan to hold over long periods of time, you will likely achieve a higher return from an investment account than from a savings account.

Investment fund accounts have their own IBANs and you can transfer or deposit money into them just the same way as with a private account or savings account. For example, you can set up a standing order to automatically transfer a certain amount of money to or from your investment fund account every month. This makes investment fund accounts a very simple solution for investing.

In contrast to Swiss asset management services, investment fund accounts let you begin investing with very little initial capital (50 francs, for example). This can make them a possible alternative to asset management mandates for small investors who only have small amounts to invest.

What are the disadvantages of using investment fund accounts?

The biggest disadvantage of investment fund accounts are the costs. Many Swiss investment fund accounts are relatively expensive. Typically, the account fee is equal to a percentage of the value of the fund shares in the linked custody account. Account fees can be as high as 0.75 percent. You pay this fee every year regardless of whether or not the account yields a return. Fees are generally deducted directly from your account.

On top of the account fee, you normally also have to pay the fund fees. That means you pay fund TER’s in addition to the investment fund account fees. TERs vary broadly between funds, so the amount you pay depends on which funds are used. As a general rule, actively managed funds have high fees, while passively managed funds (like ETFs and index funds) have low fees. In addition to the TER, additional costs like front-end loads and back-end loads may also apply.

The total costs of Swiss investment fund accounts are typically the same as those of Swiss fund savings plans. You can find a cost comparison of Swiss fund savings plans here.

Because there is a risk that the value of investments can decline over the short- to mid-term, investment fund accounts are a poor choice for holding money which you will need in the near future. Swiss savings accounts and fixed deposits are a better choice for short- to mid-term saving.

What should I consider when choosing an investment fund account?

• The account management fee: Fees and charges directly detract from returns. The higher the total cost of account management fees, fund fees, and other fees, the lower your returns will be and the higher the chance of your making a loss is.
• Possible additional costs: Fund fees generally come on top of the account fee. Some banks charge brokerage fees for buying fund shares separately in addition to the account management fee and fund costs. Some banks charge fees for tax statements. Fee models for investment fund accounts are generally identical to those for fund savings plans. You can find a cost comparison of fund savings plans here.
• The funds used: You will want to use funds which have low TERs. Funds which passively track entire indexes (such as index funds and index ETFs) typically have the lowest costs, and have historically delivered the most reliable performance. For example, if you want to invest in Swiss stocks, you could use the most affordable ETF or index fund which tracks the SMI or the SPI. Many Swiss banks only use their own strategy funds for their investment fund accounts. Even small differences in fund TERs can make a huge difference in total costs over the long term. So comparing the costs of funds offered by your bank with those of similar funds offered by other banks is recommended. 
• The withdrawal limits: Banks may limit the amount of money which you can withdraw from investment fund accounts without closing them and cashing them out completely. For example, you may only be able to withdraw up to 80 percent of the account balance without closing the account.
• The notice periods for withdrawals: Banks generally require you to give notice before you can make a withdrawal. This is because the bank must sell your fund shares and credit the cash from the sale to your account balance before you can withdraw it. The typical notice period is 2 days, but notice periods can be longer at some banks.
• If a private account is required: If a bank requires that you have a private account with them in order to open an investment fund account, then you have to account for the costs of the private account.
• The threshold for investments: Money in your account will only be invested in funds once it reaches a certain threshold. This is typically around 50 francs, but can be as high as 500 francs at some banks.

Is an investment fund account right for me?

An investment fund account could be a possible option if you have little or no investment know-how and want to invest in a way that is as simple as saving with a savings account. The prime requisite is that you are able to go without the invested money for a long time (at least 5 to 10 years). You also have to be willing to risk losing money in the worst case.

If you are not prepared to take on risk, then savings accounts and fixed deposits are a better choice for you. The same applies if you will need to withdraw your money within the foreseeable future.

The problem with Swiss investment fund accounts is their high costs. They are often relatively expensive. Digital asset management services (robo advisors) are often cheaper, and also do not require any investment know-how.

The most affordable option is to invest in favorable funds and ETFs directly yourself using a cheap online trading platform. The advantage of investing this way is that you do not have to pay administrative fees to have someone else invest for you. But you have to be comfortable with choosing the right investment instruments and buying and selling shares on your own.

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