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Friday
Jan 18th
Home arrow Money arrow Buying bonds and stocks

Buying bonds and stocks

In the last column, we explained what you need to look out for if you want to invest in bonds. You wouldn’t want to hold Bear Stearns bonds right now. That would not be a good risk.

If you want to buy a bond, where do you go? You would think of the bank, obviously, it’s a matter of money. True, but that has not always been the case.  In the 20ies and 30ies, banks were caught red handed in pushing their clients’ savings in the direction of the stock market.  In many countries, they were forbidden to deal with the stock exchange. Traditionally, you could only buy bonds, and shares for that matter, via a stock broker . You put in an order and he executed it on the stock exchange. Brokers worked in the stock exchange for a couple of hours a day, buying and selling stocks and bonds. The bid prices were chalked up on a big blackboard.  And gossip and inside information were exchanged at the Falstaff or the Cirio around a half and half.

Nowadays these stock brokers are an extinct species. They were all forced to join stock broking or securities firms. And most of these firms have been taken over by banks or investment houses. And of course, buying and selling is done over the computer now.  That makes it much easier to look further than Euronext, the Brussels Stock Exchange. You can buy and sell on stock exchanges all over the world, with a click of the mouse. Of course, you can put in your order with the bank. But nowadays, there are a number of on-line banks that offer an online trading platform, where they are trying to give a better service than the bank, at a fraction of the price.

Even if you don’t see the broker anymore, you still have to pay a brokerage fee, and a stock exchange tax.

The brokerage fee is a percentage of the value of the bonds or stocks you buy. With the traditional banks, the minimum is 1 % for shares. And over € 10,000, the percentage goes down gradually to 0.40 % for orders over €100,000.  If you look at overseas stock exchanges, the rates start at 1.30 or 1.40 %. And usually there is a minimum charge of € 25 (Fortis) or € 32 (KBC).  For bonds, the fee usually starts at half a percent.

On top of the brokerage fee, the bank also charges the stock exchange tax when you put in an order on the stock exchange. The tax is the same everywhere: 0.17 percent of the value of the stock you buy, and 0.07 % of bonds, both with a maximum of € 500.

And don’t forget, you have to keep your bonds and stocks in electronic format on a securities account. Since 1 January you cannot keep them under your mattress or in a safe anymore.  The bank will, of course, charge you a management fee per year, usually in January, as a percentage (0.20 %) of your investments, and for a small fee, they may offer you insurance to cover the inheritance tax on the securities on the account. They pay out about 30 % if you have an accident.  The last cost item to check is what you pay when you change banks. That can vary from € 30 to 60, per security.  Clearly, banks do not like to see you leaving.

Online brokers Binck Bank and Fortuneo slashed the prices. The banks now give discounts if your work on-line.  It’s worthwhile comparing the costs, all the costs. Every bank has the list of its charges on its website.  Try out www.binck.com/be/welkom/fr_default.asp. And Keytrade Bank has a special offer of € 7.50 for small transactions. 

The best advice is still to limit your transactions. Buying and selling often is only good for the bank.

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