Raiz — how the fees ate my returns

An analysis of the actual returns of Raiz, a micro-investing app

13 min readAug 9, 2023

Any of the information in this article is not financial advice, it is purely for entertainment purposes. I am not a financial advisor and do not hold any qualifications in any are of finance. Always consider your own situation, and seek professional financial advice if needed.

In Australia, at the moment of writing (July 2023) the official cash rate set by the Reserve Bank of Australia (RBA) is 4.10%, a 400bps increase from its lowest rate in April 2022. This is causing serious friction in many Australian households, as monthly mortgage payments increase substantially due to the rising interest on these (variable interest rate) mortgages. On the other side of the coin we see that savings are generating interest income again. And banks have been leveraging this opportunity by offering and promoting high yield savings accounts. With every announcement that the RBA has made over the past months, my bank did not waste time to increase their bonus interest rates. In fact, it has been emails like the one below that made me aware of the RBA’s decisions to increase the cash rates. It was through mails like this:

ubank’s March 2023 bonus interest rate increase notification

4.60% on a savings account, and at the time of writing this article it is actually 5.00%. The base rate is 0.10%, and all you need to do is deposit a minimum of $200 that month to unlock the bonus rate. Depositing $200 each month on that account has been achievable for me. It opened up a risk-free investment with a moderate return (4–5%). And therefore it also made me consider the returns of some of my other investments, such as Raiz.

About Raiz

Raiz is one of the micro-investment brokers that are available to Australians, and they are expanding to other markets. They are originally from the US where they have been operating under the brand name Acorns. They operate by taking small amounts of money out of your bank account, either through transaction round ups, or recurring deposits from your bank account.

In essence, rounding up your transactions to the nearest dollar and investing that change is a great feature, because otherwise that money would just sit in your bank account and not grow. And after all, it’s only a few bucks per week.

Where does the money go?

Raiz takes your money and invests it into a selection of reputable funds that are listed on the Australian Stock Exchange (ASX). See end of article for a full list of the ETFs.

My problem with Raiz

With every investments, one has to consider the impact of costs and fees from an investment. For example, if one were to buy 10 Apple shares of $100 per share, and have to pay $20 in brokerage fees, then the cost per share is $102 per share. So one would need the share price to go up with 2% just to break even. And with Raiz it’s not any different, except that the costs are much higher relative to the investments an average customer would make.

The miracle of compounding returns has been overwhelmed by the tyranny of compounding costs — John C Bogle, Founder of Vanguard

This quote from the founder of Vanguard summarises my problem with Raiz: the fees. I was looking at my Raiz dashboard and wondering whether my Raiz investment portfolio was outperforming my high-yield savings account. It was not. With a return of 1.41% it was not even close to outperforming a high-yield savings account.

And that’s why I closed my account and moved my money elsewhere.

I have outlined further down in this article how I got to that 1.41%. And after I calculated my returns and started writing this article, I found this article which was written in 2017, with the author coming to the same conclusion and warning Raiz users that they are being ripped off.

So I closed my account, and in the sections below I’ll talk more about the two reasons that led me to say goodbye to Raiz.

Reason #1: the impact of fees on the total investment

(all amounts in AUD unless stated otherwise)

Raiz’ maintenance fees

Raiz charges $3.50 per month for accounts with balances between $0 and $15.000, for account balances over $15000 it’s 0.275% per year. which is a minimum of $41.25 per year. Under $15000 your yearly fee is $42/yr (12*$3.50). Raiz is very transparent about these fees, and it goes towards business operations (employee salaries etc.). There’s absolutely nothing wrong with fees, and I prefer my fees to be clear and obvious rather than having a zero fee product. Charging no fees means that a business makes their money in another way, but you’re still paying one way or another.

But depending on how much money you put towards Raiz, your break-even price will be substantially higher than your initial investment. For example, consider the following weekly investment amounts and the cost percentage:

$5/week is $260 per year (52 weeks). With the yearly fees, your break-even price would be: $260 + $42 = $302 per year. 16.15% of that total amount consists of fees, so that’s the gain you’ll need to realise to break even. Good luck getting a 16% return. The more you invest though, the closer your break-even point will be to your initial investment. Have a look at the table below for some scenarios, and the gains (in yellow) you’ll need to realise to break even.

An overview of the cost impact per weekly investment amount

Update August 2023

As of 1 August 2023, Raiz increased the monthly subscription fees to $4.50. The table below reflects a simulation with the updated fees.

Judging from the examples above, it takes quite an investment to keep the impact of Raiz’s fees low. The higher your investments, the lower your returns need to be to break even. You just have to consider how much you realistically can and want to contribute to Raiz. Sticking with the micro part of micro-investing won’t do you any favours.

So much for the impact of the above-the-fold fees.

Fund fees (the less obvious ones)

It’s clear how much Raiz charges for its services. But there are also fees charged by the underlying funds, or ETFs (the financial instruments in which your money is actually invested, Appendix A). And these fees are less obvious. ETFs charging fees is nothing out of the ordinary, fees are charged when you invest in ETFs individually as well.

When investing through one of the preset portfolios in Raiz, typically your money will be invested across 7 different ETFs. Depending on the portfolio you choose, the allocation per ETF changes slightly. Investing into 7 different ETFs also means that there are 7 different ETFs charging fees to you. This would happen if you invest in them through another broker as well, so again nothing out of the ordinary here.

Screenshot of the Raiz portfolios and ETF investment allocations (07/07/2023)

However, the fees that these ETFs charge are not reported anywhere in a clear way. Therefore it is hard to understand how these fees impact your returns. As per the regulations, Raiz mentions the ETF fees in their Product Disclosure Statement (PDS), and show some examples of the estimated costs per annum. Always read the PDS of any financial product you purchase, kids!

Below are two examples that Raiz provides, and I’d also like to highlight the following paragraph taken from their PDS:

Total investment costs
It is important to understand that the total fees and other costs you pay in relation to your investment in the Raiz Investment Account includes Transaction Costs and the fees and costs of the Investments you choose (including any Underlying Issuer Fees and Underlying Issuer Transaction & Operational Costs) (specified in the relevant Offer Document) in addition to the fees and costs of the Fund (specified above).

The example below is likely to be representative to the target audience who invest a few bucks per month. The example below assumes that you invest about $20 per week, which gets you to about $1000 on a full year.

Example of total investment costs for $1,000 invested in Raiz Investment Account (with no Transactions)

And below an explanation in human language, again from the same PDS. The example below is assuming a starting balance of $1000 with $250 of contributions halfway through the year.

So what this means is that, at the end of the year you would have contributed $250 dollars, and you would have been charged $44.73 in fees, for Raiz to invest your money. Based on my understanding of how Raiz charges these fees, your total contribution would be $292 ($250 investment + 42$ fees for that year), and the additional $2.73 gets deducted from your total returns. So effectively putting $247.27 of your invested money at work. That’s 98.90% of your contributions at work, or 84.68% of the total money you spent on Raiz that year (contributions + maintenance fees). Sounds complicated? Well…

Imagine a bank telling you that after putting $1000 on a savings account, they tell you that they’ll only pay you interest on $850 of that $1000, because the rest is needed for fees. So that $850 would somehow have to grow to $1000 for you to break even. In other words, it would have to grow with $150, which is 17% of $850.

Indeed, we’re talking about low double digits returns that are required to break even with Raiz.

So much for the fees.

Reason #2 for closing my account: The poor returns

This reason is more subjective, as it takes into account my own situation and choices*. Other Raiz investors will have realised different returns.

I had a fair go at the math to answer my own initial question whether my Raiz portfolio was outperforming a high-yield savings account. Here are some facts of my personal investment journey with Raiz:

First investment: August 2020
Highest account value (a couple of days before closure): $9082.69

Status on last day prior to account closure, as reported by Raiz.

Closing account value: $8980.47
Reported market return: $231.16
Total dividends: $387.29*
Total rewards: $25.11*
Total monthly fees: $115**
Total bank funding (roundups + regular contributions): $8740.70
Total investment duration: 33 months
I have cross-referenced and verified these numbers through my bank statements and the transaction statements provided by Raiz.
**Source: bank statements and Raiz’ transaction statements

*My Raiz portfolio situation, choices, and contributions

The following aspects are important to consider:

I have not invested consistently throughout my time. At times I made regular contributions of as high as $125 per week, plus roundups on top of that. At other times I was only investing through automatic roundups (~$15–25 per week).
At some point I customised my portfolio. This caused my monthly fee to go up to $4.50 per month, and shifted the allocation between different ETFs within my portfolio. My custom portfolio also included Bitcoin, weighted at 5%.
The performance of my Raiz portfolio is mostly determined by the performance of the underlying ETFs. This may not have been great due to the underlying assets within those ETFs (quite a bit of layering going on).

So quite a couple of variables to consider, and my situation and choices will most definitely be different from other Raiz users choices, and the impact of those choices will have been different.

Screenshot from my account, taken on moment of highest account value. Green line represents my contributions over time, white line represents my account value over time.

I’ll start with outlining a couple of issues and discrepancies with the information above, and I’ll do this through 3 methods of calculating returns. I’ve added descriptions of the thinking that hopefully explain the thought process.

Method #1: Invested by you + Market return + Total Rewards

I believe this is how Raiz calculates the total return, but I am not entirely sure.

If we subtract the Invested by You amount (1) from the displayed Account Value (2), which is $8,980.47 — $8,740.70 then we see a difference of $239.77. The reported Market Return is $214.66 (3), with the reported Total Rewards of $25.11 (4) we do end up with a positive result of $239.77 (+2.74%). I’m not sure where the Change in Value +$246.99 (+2.73%) (5) comes from or how that’s calculated. But 2.74% in gains is far from great and doesn’t beat high-yield savings accounts at the moment.

Note that I didn’t account for the dividends (6) I received. More on this in the second method.

A summary in human language of how Raiz calculates your returns

Method #2: Own funding and reinvested dividends

I did not include the dividends that I received, and according to the calculation neither does Raiz. This is a problem.

In general, the good thing about dividends is that when you receive them, you can choose to reinvest them. This is great because it accelerates capital growth through compounding. And Raiz does this too, it shows up on your statements as reinvested dividends (DVRI on their statements).

So if we consider this, the actual investments (from what I can see) should be $9127.99, $8740.70 through funding and $387.29 through reinvested dividends*. If I use these numbers in my calculations, it would mean that I’m at a $147.49 loss, because a total of $9127.99 has been invested and my account value is $8980.47.

Maybe this is where the ETF fees have their impact. I’m assuming this because Raiz still reports a gain, but I have no easy way of verifying what the ETF fees have done to my gains.

I am not clear on whether the Rewards, earned through referral cashbacks and completing surveys, get invested or not, but I’m leaning towards not.

I think this method is the truest method of reporting, as it considers all the money that has been invested in the ETFs in your portfolio. But it is pretty opaque, and Raiz doesn’t report like this.

Method #3: Own funding (roundups + investments + monthly fees)

This is my preferred way of calculating returns, as is considers all the money that I have transferred to Raiz. So that means my roundups, any periodic investments, and the monthly maintenance fees. So $8740.70 in funding and $115 in maintenance fees makes for an $8855.70 total spend by me. With an account value of $8980.47 that makes for a $124.77 gain. That’s 1.41% on south of 3 years. There are investments that are safer (savings accounts and term deposits) that guarantee a higher return than that. So risk vs return ratio is very poor.

This has led me to closing my account

So in conclusion, my returns of 1.41% over the past two and three quarter years of using Raiz have not been fantastic. I was not impressed by what Raiz was doing with my money, so once I got a sense of the costs and the returns it was a pretty easy decision. I distributed my money to other investments.

About fees

Fees are a crucial part of a service offering. I mentioned this earlier, I’d rather pay a transparent fee than being charged through obscure practices. Sadly enough there are two fee mechanisms when using Raiz; there is a transparent fee in the form of the monthly charge, and there are the ETF fees which are less obvious, but still eat away at my capital.

As good as the concept of micro-investing is, and using your ‘spare change’ through auto-roundups, I find the costs too excessive. And my hunch is that my modest positive return is only there because of my substantial investment.

What all of this should mean to you

Honestly, nothing other than to consider how fees can eat away at your capital and slow down your capital’s growth.

Consider the impact of the fees you pay for your investments.

As with all investments, it is crucial that you do your own research and determine what is good for you, considering your situation. And that is exactly what I have done and outlined in this article: I have done my own research. My own research led me to close my account, and some of the articles I have read in preparation give me confidence that that was the right decision for me.

What’s right for me might not be right for you. Do your own research, and if you’re not sure then please get financial advice from a professional financial advisor.

There are definitely benefits to Raiz, especially if you’re new to investing:

It puts money to work that you otherwise wouldn’t have put to work (virtual spare change)
It gives you exposure to some of the aspects of investing and the psychological behaviours that come with it.
It’s a way of entering the market through something that’s called dollar-cost-averaging (DCA).
It can show you how costs and fees can impact your returns, and hopefully this article has contributed to that.

But none of the above reasons contribute directly to your capital growth.

I can’t stress it enough, when assessing the performance of your Raiz, or any portfolio, keep an eye out for the fees you pay to use the service.

Appendix

A. List of ETFs in Raiz

source: Raiz PDS p19–22, updated on 15/05/2023, accessed on 07/07/2023

B. Total underlying issuer fees per Raiz portfolio

source: Raiz PDS p46, updated on 15/05/2023, accessed on 07/07/2023

Conservative Portfolio: 0.190% p.a.
Moderately Conservative Portfolio: 0.181% p.a.
Moderate Portfolio: 0.203% p.a.
Moderately Aggressive Portfolio: 0.234% p.a.
Aggressive Portfolio: 0.251% p.a.
Emerald Portfolio: 0.407% p.a.
Sapphire Portfolio: 0.222% p.a.
Property Portfolio: 0.515%