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No More Free Money - X.com Ends Rebate Program

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Just six months after launching the fund that paid you to invest, x.com announced it was ending the program.

In November of 1999, x.com opened an S&P 500 index fund that not only waived fees, but gave investors a payment of 0.01%, capping investment at $15,000. Apparently concluding that giving away money was not the best way to make it, x.com announced the termination of the program.

Not only will investors no longer receive the rebate, a fee structure of 0.15% will be instituted on the fund, which is managed by Barclays. In addition, accounts of less than $5000 will be charged $2 per quarter. Implementation of the new fees will allow x.com to remove the $15,000 limit on investment in the fund.

A quick survey of the new fee structure indicates that for a small investor, the fee change will be significant. If an investor purchased $2000 worth of shares in the fund, he would be charged $8 in fees, which amounts to a stiff 0.40% in addition to the 0.15% fee ratio of the fund. Previously, instead of paying these fees amounting to $11, the same investor got an annual windfall of 20 cents.

For an investor of $5,000 or more, though, the 0.15% expense ratio is still a bargain, with only the Vanguard 500 fund's 0.18% expense ratio a rival among open-ended mutual funds. Spiders and iShares, and likely the soon-to-be-released Vanguard Vipers among exchange-traded funds have lower fees, but involve brokerage commissions when shares are purchased.

X.com recently merged with PayPal internet banking and financial service, which initially paid customers $10 to sign up for its Internet payment plan and also paid $10 for anyone who got another person to sign up for the service. The reward has since been scaled back to $5. Paypal makes its money through interest gathered from money in its accounts. The index fund will now make money from fees. More than $1 billion moves through the company every year.

IndexFunds.com Staff