Your Money blog: How much your fixed-term savings or investment plan is really costing you

According to figures from a UAE financial expert, more than half the amount you invest into a fixed-term savings or investment product could be swallowed up by charges.

The Money Roundtable in The National’s newsroom this week examined whether long-term savings and investment plans sold in the Middle East work in the interests of those that sell them or the customers who invest into them. Delores Johnson / The National

If you’re considering investing into a fixed-term savings or investment plan in the UAE, make sure you do your sums.

The National has asked an expert to calculate exactly how much five of the most commonly sold products in the UAE will cost you in charges – and the figures are astounding.

The products are administered by insurers such as Generali International (Vision), Zurich International (Vista), Friends Provident International (Premier), RL360 (Quantum) and Hansard International (Vantage) and sold to residents via financial advisers.

According to Julian Vydelingum, a chartered financial planner at AES International, an investor could pay up to 51.68 per cent of the amount they invest in charges as a percentage of their total contributions if they have signed up to RL360’s Quantum product over 25 years. That basically means that half your monthly investment is effectively stripped out of the plan.

With other products available here extracting similar amounts, it’s no wonder so many people are contacting The National complaining about being locked into poor-performing products.

Hence why we hosted The Money Round Table this week, where we invited six delegates to debate whether fixed-term savings and investment products have a place in a UAE resident’s investment portfolio.

With charges taking over half of what you put in – it appears it has no place at all. The calculation was based on an investor depositing US$1,222 or Dh4,500 a month into a 25-year-plan. For the RL360 product, that means total cumulative contributions are $366,600 over 25 years but the projected end value is only $352,343.46, assuming 4 per cent growth, which is less than you put in. This is because the plan’s cumulative charges are $189,459.97. This is the scenario for all the products in the table.

The costs include a high upfront commission fees and these are generally taken within the first two years of the product’s lifespan. The adviser and the life company are also funded via a myriad of fees such as the administration fee, plan fee, establishment charge, early discontinuance charge, premium protection cover charge … the list goes on.

All these fees must be paid in the event of an early exit, which is when most policy holders realise how much their plan is actually costing them.

So, if you have already bought into a plan, or are considering buying one, the table summarises the estimated future value and the charges as a percentage of the contributions made for the most prevalent products in the UAE marketplace.

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