Is it realistic to start Online Investing with just $5?

If you are just beginning in online investing should you take advantage of a programme that offers a very low $5 initial deposit. Just to be clear here I am focusing on online investing programmes that are based on a passive investment approach i.e. you make an investment on the basis of the programme paying a fixed or variable rate of interest per day or week.

With such a low entry point are the online investments being realistic about their offer? Well in one sense I think you can say they are. As many people distrust these forms of investment, companies need to come up with ways to allow people to try what is on offer at little risk. One way to do this is to set the entry point low and assuming things perform as planned the investor would be persuaded and therefore happy to invest more. So as a marketing ploy this approach could be considered acceptable.

For the more cynical observer there could be a view that the programme is going out to attract as much cash as possible before heading off into the sunset. Personally I find this rather short sighted, of course some programmes do fail but as long as a potential investor does their homework it should be possible to root out the bad apples fairly easily before parting with funds.

More importantly perhaps is the practicality for beginners to realistically fund a programme with say a $5 investment. Unfortunately you can’t just walk into the nearest branch, put your $5 on the counter and walk out with a receipt. In practice there are a number of hurdles to jump before your investment can start earning.

Let’s take a closer look at just what sort of fees you could encounter. I can’t be precise here but the figures I’m presenting are typical and should be considered when investing in any online programme. I’ll use US$ for comparison purposes (I’m making the assumption that bank wires aren’t an option as they generally require quite a high level of investment to be used).

In most cases your funds would need to leave your account and go to an e-currency exchanger. There is generally a minimum fee attached to any transaction which is normally in the region of $25. If you are converting funds from another currency you will also be penalised on the exchange rate (this can be fairly significant).

As the funds go from the e-currency account to the payment processor there may also be a charge from the payment processor for receipt of the funds. You wouldn’t normally be charged any fee for making the investment to the online programme itself.

In summary you are therefore looking at a minimum of $25 and perhaps a maximum of $30 to $40 to get your investment started. Clearly for a $5 investment this doesn’t make a lot of sense.

So, as a beginner how much should you consider as a starting amount to invest? In reality I believe you have to consider $100 as an absolute minimum (excluding the charges discussed) and how long it would take to not only recoup your seed money but the associated charges as well.

The $5 option is more suitable for those who already have payment processor accounts and receive interest from their existing investments.