What does the lock-up and exit fee really cost?
Guaranteed plans are usually sold with a term and a fee for leaving early. Both are paid out of the balance, while the promised rate is quoted before them. This page shows what is actually left, and the return that implies.
Enter the numbers
Far above anything supervised finance guarantees
Returns this size exist only inside leveraged trading, private equity and a handful of short-lived funds - never as a fixed, guaranteed rate paid to the public. A guarantee at this level is paid from the money coming in after you.
| Lock-up, in money | Amount |
|---|---|
| Profit if every payment arrives | $4.3K |
| Cost of the exit fee | $1.4K |
| Profit that is actually yours | $2.8K |
| Promised months needed just to pay the exit fee | 4 months |
Net = principal x (1 + monthly rate) ^ months x (1 - exit fee).
The red line
A guaranteed return higher than a Treasury bill or an insured deposit cannot exist. Every dollar paid above the risk-free rate is paid for with risk, leverage, or other people's deposits. A published promise of a fixed return above the risk-free rate is the definition of a return trap.
Reading the result
- The model compounds the promised monthly rate, then applies the exit fee to the whole balance. That is the usual order in plan documentation and it is the least favourable to the investor, which is the order to check first.
- A plan that needs a lock-up to work is a plan that cannot meet withdrawals on demand. The lock-up is a funding constraint wearing a product name.
Questions this calculator answers
- Why do guaranteed plans need lock-ups?Because they cannot meet redemptions on demand. The term exists so that the operator controls when money leaves, not so the investor earns more.
- How do I compare a fee-and-lockup plan with a simple deposit?Convert everything to a single annualised figure after all fees, as the fourth metric does, then compare it with the rate your bank or broker publishes for the same term.
- What if the fee only applies to early exit?Then price both cases: stay to the end of the term, and leave at the worst possible moment. A product is only as good as its worse path.
These are arithmetic tools, not investment advice, and no calculator can tell you whether a particular operator is honest. What the arithmetic does show is whether the advertised return could come from a supervised product at all. To see the returns that are being promised in the wild, read the register, or the method and math page for how entries are built.