Open a new account, switch accounts… “Point Return” is the criterion for choosing an account!
The new NISA will start in January 2012. Compared to the current NISA, the new NISA will be much easier to use, with an increased maximum investment amount and an indefinite tax exemption period. Many people may be considering opening a NISA account or switching financial institutions. So, which financial institution is best? Let us compare them from the viewpoint of “point redemption.
New NISA will significantly increase investment limits and extend the tax-free period indefinitely.
The official name for NISA is the “Small Amount Investment Tax Exemption Program. As the name implies, it is a government program under which tax on gains from investments is reduced to zero. It began in January 2002 and is now in its 10th year. According to the “Survey on NISA Account Usage” published by the Financial Services Agency, the total number of accounts as of the end of December 2010 was approximately 18.04 million. The current population of the 20-79 age group in Japan is approximately 92 million, which means that roughly one out of every five people has a NISA account.’ Since 2008, there has been a marked increase in the number of young people in their 20s and 30s opening accounts.
The tax benefits of the new NISA will be greatly expanded. The current NISA includes the General NISA, which invests in stocks and investment trusts, and the Tsumitate NISA, which invests in investment trusts in the form of savings, each with an upper limit on the annual investment amount. The General NISA allows 1.2 million yen per year, while the “TSUSEITATE NISA” allows 400,000 yen per year, and one has to choose one or the other. Under the new NISA, the “Growth Investment Limit,” which corresponds to the General NISA, has been increased to 2.4 million yen, while the “Installment Investment Limit,” which corresponds to the “Installment NISA,” has been increased to 1.2 million yen, both significantly. Moreover, since both can be used together, the total annual investment limit is 3.6 million yen.
In addition, the tax exemption period for the current NISA was 5 years for the General NISA and 20 years for the New NISA, but both new NISAs have an indefinite period. No matter how much tax is not paid on gains from investments, there is no benefit of tax exemption if losses are incurred. In the case of stocks and investment trusts, it is possible to lose money for five years, so the longer the tax exemption period, the better.
NISA accounts are “no choice except for online securities!
Financial institutions that offer NISA include securities companies, banks, credit unions, credit associations, and agricultural cooperatives, but if you want to open an account, you should probably choose online securities. There are three main reasons for this: First, you cannot invest in stocks outside of a securities company. Even if you do not plan to invest in stocks for the time being, it is better to have a wide range of options.
Second, there is a wide range of investment trusts available , and only those that meet the requirements set by the Financial Services Agency are eligible for investment under NISA. And, except for online securities, the number of stocks handled is not necessarily large. For example, there are a total of 235 investment trusts eligible for the current “Tobuze NISA” (as of June 2011). While online securities offer around 180-190, many megabanks and major securities firms offer around 10 or so.
There are several mutual funds that have exactly the same contents, such as those linked to the Nikkei Stock Average, but have different holding costs (i.e., trust fees). Therefore, if there are similar products, you can choose the one with the lowest trust fee. However, if the product lineup is small, it is impossible to compare and select the best one.
Some banks and brokerage firms have lineups of mutual funds managed mainly by their own affiliated investment management firms. As a result, they tend to exclude similar products with cheaper trust fees. Perhaps these circumstances will not change much with the new NISA. We sometimes hear people say, “There are too many to choose from, so I don’t know what to choose,” but it is important to remember that you are more likely to lose money if you have too few to choose from.
Point redemption at NISA with “credit card payment”.
The third reason is that some online securities offer point rewards for investment. Similar to the points given for credit card purchases, points are given when funds are settled with a credit card instead of cash. Particularly beneficial is the point reward for investing in mutual fund savings accounts. When you pay with a credit card, you receive a certain amount of points based on the amount of money you accumulate each month.
Many of the online securities companies that offer this service also offer it to their customers in the form of a savings NISA account. This service will probably be carried over to the new NISA. If you accumulate several tens of thousands of yen every month, the points you get back will be significant. There is no way to avoid using this service. Below is a summary of the points that can be earned and the redemption rate for each online securities company.
Among the four listed companies, au kabu.com Securities andMonex, Inc. are one step ahead in terms of point redemption rates alone. However, as mentioned in the table, the redemption rates for SBI Securities andRakuten Securities vary depending on the rank of the card. The V-Points redeemed by SBI Securities will be converted to T-Points in the spring of 2012, and the V-Points redeemed by Rakuten Securities will be converted to V-Points in the spring of 2013. V-points redeemed at SBI Securities will be integrated with T-points in the spring of 2012. V-Point is becoming a major force in the common point system, and it is increasing its presence in this financial field as well.
Credit card settlement point redemption is a complete “deficit service
This service, in which points are redeemed for investment trust accumulation using credit card payments, was launched by Rakuten Securities in October 2006. At the time, the rate of return was 1%, which, combined with the boom in point services, was a huge hit, and other online securities companies introduced the service one after another. However, Rakuten Securities lowered the reduction rate to 0.2% for stocks with low trust fees in September 2010. This “deterioration” is believed to have caused a decline in the amount of investment trust savings accounts set up by Rakuten Securities and an outflow of funds to other companies. As a result, Rakuten Securities was forced to raise the rate of return again in June 2011.
Currently, many of the investment trusts invested in through the “nasate” system have relatively inexpensive trust fees, and rates of around 0.1% are not uncommon. If a 1% point reward is given for the purchase of such investment trusts, it would take 30 years to pay off the cost, taking into account the brokerage firm’s actual commission income (about one-third of the trust fee). In other words, the investment trust accumulation point service is a completely “loss-making” product for securities companies.
How much of the “reserve investment limit” is eligible for point reductions?
Therefore, it can be said that the content of each company’s services, such as reduction rates, “could be revised at any time” in the future. In the near term, the competition for customers is intensifying in anticipation of the start of the new NISA in 2012, so it is unlikely that there will be any changes in the future. And, at the very least, it is unlikely to be changed during 2012. It may be too blatant and lead to user defections.
That said, as mentioned above, it is hard to say that the service can continue forever. It would be wise to make active use of the service while the benefits are still significant. In many places, redeemed points can be used to purchase stocks and mutual funds. For example, the points redeemed under the New NISA’s “Advance Investment Limit” can be used to purchase mutual funds under the “Growth Investment Limit. The purchase unit for mutual funds is usually 100 yen. By reinvesting the points returned, investors can expect to improve their performance.
The question remains as to how much of the maximum 1.2 million yen limit of the new NISA’s “Advance Investment Limit” will be eligible for point redemption. The maximum monthly amount that can be accumulated in the “reserve limit” is 100,000 yen, but currently the maximum amount eligible for credit card point refunds is 50,000 yen. Only Rakuten Securities offers 50,000 yen in point reimbursement for Rakuten Cash, bringing the total to 100,000 yen.
The Financial Instruments and Exchange Law prohibits credit card transactions for financial products, but there is a provision in a Cabinet Office Ordinance (Article 148) that makes an exception for savings investments. Moreover, the maximum amount is 100,000 yen per month. It will be interesting to see whether Rakuten Securities will follow suit in the future.
Interview and text： Kenji Matsuoka
After working as a money writer and financial planner/market analyst for a securities company, he became independent in 1996. He writes articles on finance and asset management mainly for business and economic magazines. Author of "A Textbook for the First Year of Robo-Advisor Investing" and "Understanding with Rich Illustrations! The Book of Absolute Benefit from Cashless Payments".