As a Swiss citizen, you need to be aware of the following when buying ETFs in Germany

Letztes Update: 28. September 2023

The article about the purchase currency of ETFs has caused a great echo, and therefore I have delved a little deeper into the subject. Through letters I know of some who buy their ETFs from German brokers. In this article, we will take a look at whether this is always so favorable.

Trade currency and currency exchange

As stated in the previous post, it doesn’t matter if you buy an ETF in CHF, USD, EUR or any other currency. However, what often goes unnoticed in the money is the poor exchange rate of the banks. I have a few acquaintances who change their money at their Swiss house bank and then transfer it to Germany to their broker. As you know now, the broker or the bank always takes something from you due to unfavorable exchange rates, which is not explicitly shown on any statement or yield calculation. The spreads are sometimes very high, as you can see in the table in the last post.

Where can I find my bank’s spread?

The best thing to do is to type in the name of your bank and “foreign exchange rates” on Google. I’ll show you using the example of PostFinance: You will then be taken to a currency converter, in our case interested in “Foreign exchange rate / rate Giro international”. This rate is applied to foreign payments via payment order, standing order and electronically. Depending on the bank, it is called differently. And as you can see, it depends on the amount to be changed.

Using the rule of three, you can calculate how much PostFinance adds. Here, the difference between the buying and selling rate is approx. 2.4%. If you halve the percentage, you have the markup charged for one direction of the exchange. Here it would be 1.2% for the purchase. And when selling, another 1.2% is added.

Sometimes a confusion arises regarding buying and selling: You buy EUR, the bank sells EUR in return. The rate to be applied is always the rate from the bank’s point of view: In our case, the selling rate: 1 EUR you get for 1.0906 CHF.

Often you will also find the grade course there. This comes into play when you withdraw notes in foreign currencies from ATMs or over the counter. In this business, the bank pinches off even more. PostFinance, for example, around 2.25% for the exchange in one direction.

Currency swap loss

But back to the ETF purchase. Let’s take a closer look at an example: Laura has a custody account with a German broker, exchanges her CHF at her house bank into EUR and transfers them to her German broker. SEPA transfers are titled free of charge at her bank, let’s take PostFinance as an example. But that is only half the truth. Now there is the difference between buying and selling rates (also called spread), which can be defined by the bank itself. Let’s stay with PostFinance. There, as researched above, approx. 1.2% is lost when exchanging into EUR and another approx. 1.2% when exchanging back into CHF. In addition, such a foreign transfer is slow, the money arrives only after two to four bank working days in Germany.

WP Data Tables

Admittedly, the comparison is somewhat misleading because the ETF must be sold again at some point. And there are sales charges and exchange rate fees there as well.

So let’s extend the example. Now Simon and Laura buy ETF shares quarterly for CHF 2,000 over 10 years.

I refrained from converting Laura’s amounts to euros and then converting them back at the same rate. As we know, it doesn’t matter in terms of return in which currency you buy the ETF. Again, all amounts are in CHF.

The final amount was calculated with this savings plan calculator.

WP Data Tables

For the Rapp splitters: The custody account fee at Swissquote increases with increasing custody account volume. But it can be assumed that Simon does not have only one ETF and therefore the fee can be divided among the other ETFs. For simplicity, I have calculated with CHF 60 per year.

It should be noted that not all brokers accept transfers from Wise, formerly TransferWise, or Revolut. Some refuse the referrals. To others you can transfer CHF, but they automatically convert to EUR and book EUR. Here, too: Beware of bad exchange rates. Still others offer multi-currency accounts to which you can transfer different currencies. Each broker handles this differently. So it’s best to find out before you open an account.

Conclusion

Depending on the deposit frequency and the amount of the respective amount, a Swiss broker can thus definitely keep up with the costs.

Besides, it is much more convenient to do everything with one transaction (payroll account – broker) than with an intermediary like Wise, formerly TransferWise.

Another disadvantage is that most German brokers do not offer a Swiss tax breakdown. It is possible without it, but filling out the tax return takes much longer, especially for many items.

Many savings foxes search for the ultimate cheapest provider for days on end. I think this comes from the German financial bloggers and YouTubers, who also have a large reach in Switzerland. But their recommendations are unfortunately not 1:1 applicable for our conditions. With a robo-advisor like Selma, which charges 0.9% (0.68% plus approx. 0.22% for product costs) in the most expensive variant, the savings foxes scream: “MUCH TOO EXPENSIVE”, but they themselves exchange money with a markup of up to 1.75% per purchase and sale.

Costs are an important part of investing and have a direct impact on returns. But when searching for the cheapest provider for days, you actually have to consider your time spent on it as well. And it’s neither free nor unlimited.

What this means for Swiss people in concrete terms: For smaller amounts that are to be invested regularly, a Swiss robo-advisor is worthwhile. There you are well diversified in one fell swoop and a tax breakdown is usually included in the all-in fee. For larger amounts, you’ll get the best value by using a Swiss broker and buying ETFs in Swiss francs on your own.

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