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TER, Spread, Currency Conversion, and Taxes: The Total Cost of Your Investment
Key takeaways
- TER is just one component of costs — it is not enough to monitor it alone.
- The spread and currency conversion can each cost fractions of a percent on every purchase.
- In the Czech Republic, dividend taxes are always due; tax on capital gains depends on the holding period.
- You find the total investment cost by adding all layers, not just the TER.
- Switching to an accumulating ETF helps defer the tax liability.
The total cost of an investment is the sum of the fund's TER, the spread on purchase, currency conversion fees, and taxes — anyone who sees only the TER sees only part of the picture.
TER: the foundation, but not everything
TER (Total Expense Ratio) is the annual cost charged directly inside the fund. You see it in the unit price — you do not receive a separate invoice. For large index ETFs it typically runs between 0.03% and 0.25% per year. The lower, the better — but it is only the starting point.
Spread: the hidden cost of every trade
The spread is the difference between the buy and sell price of the ETF at any given moment. For large funds it is narrow — on the order of fractions of a percent. For smaller or thinly traded funds it can be significantly wider. That is why we recommend large ETFs on the ETF page as a starting point — liquidity translates directly into the spread.
Currency conversion
If you buy ETFs denominated in euros or dollars from a CZK account, you pay a conversion fee. Some brokers charge it explicitly; others embed it in a less favourable exchange rate. Exact rates change — always verify them directly with your broker. Maintaining a EUR or USD sub-account, where the broker allows it, can help.
Taxes in the Czech Republic
- Dividends from distributing ETFs are subject to 15% withholding tax at source (or via tax return filing).
- Sale of ETFs: if you hold for more than 3 years (the holding-period test), the gain is exempt from personal income tax.
- Accumulating ETFs automatically reinvest dividends — no dividend tax liability arises until you sell.
More about accumulating vs. distributing ETFs and their tax treatment can be found in the article accumulating vs. distributing ETFs. The Irish domicile and its effect on dividend taxes is covered in why UCITS ETFs with Irish domicile.
FAQ
What is TER and why does it matter?
TER (Total Expense Ratio) is an annual fee embedded directly in the ETF's price. It automatically reduces the fund's performance. The lower the TER, the greater the share of returns that stays with the investor.
What is the spread on an ETF?
The spread is the difference between the price at which you buy and the price at which you sell an ETF. For large funds it is small. For less liquid funds it can be significant — it is a hidden cost on every trade.
How does the holding-period test work in the Czech Republic?
If you sell an ETF or shares more than 3 years after purchase, the gain from the sale is exempt from personal income tax for individuals. This has applied since 2025 even for amounts exceeding the former annual limit.