For some reason, many people investing their money in Ireland get talked into investments which lock up their cash for five years or even longer.  Moneycube explains why most people should avoid investment plans that come with early exit fees attached.

And if you’re considering a plan like this, we have some simple suggestions before you commit.

There are five main reasons you should avoid investments with early exit fees.

1. Early exit fees are chunky

A typical early exit penalty structure in Ireland involves the fund provider trousering 5% of your money if you sell in the first year, 4% in the second, 3% in the third, 2% in the fourth, and 1% in the fifth year following your initial investment.

This is on top of the usual charges you will pay anyway (such as management fees and the government levy).

If you accept this, it will put a serious dent on the growth in your investment if you need to sell in the early years.

2. Little financial benefit

Fund providers argue that it’s worth accepting these fees for what you get in return.

It’s easy to understand why.

From the perspective of the investment provider, the longer you stay invested, the more they can charge you.

The problem is that the upside to you, the customer, is surprisingly small.  In return for committing your money to a fund provider, for half a decade, you might be offered a bonus allocation of under one per cent.  That’s roughly 0.2% for each year!

3. There are better options

Early exit penalties can be avoided.  The majority of Moneycube’s customers use investment plans which give them access to their money at any time, without incurring penalty charges.

Now, investing is a long-term game.  So we recommend that you plan invest for a period of at least three years, and preferably longer.  But that shouldn’t mean locking it up.

We believe most people should still have access to their investment if they need it, without paying sky-high exit charges.

4. Your plans might change

Few of us know what life will look like in half a decade’s time.  Your investment plans need to be flexible enough to adjust to the changes life brings.

5. Your risk-reward capacity may change

Similarly, it’s difficult in 2018 to be sure of the kinds of risk and reward you will be prepared to accept in 2023.

Locking yourself into an investment with early encashment penalties makes it hard to alter your chosen investment path.

Two more tips

If you are tempted to accept an investment proposition which involves early exit charges, Moneycube has two tips.

Firstly, negotiate.  You may find that the provider can offer very similar terms without early exit fees.

Secondly, consider apportioning at least some of your money to an investment which you can access at reasonable notice, without punitive early exit charges.

By investing €400 a month you could save €27,900 in 5 years

Using our "Picture your money" tool, you can find out how your money could work for you.

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Note: This is an initial indication to help you picture your money. Remember that with investments it is not possible to know for certain what returns you will achieve. Please note the investment warnings at the bottom of the page. This is the approximate before-tax return on an investment which grew at 6% over 5 years.


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How to get started investing in Ireland