Customer charges on the controversial Clerical Medical Insurance offshore investment bonds marketed by National Irish Bank were complicated and penalties for early encashment were high.

While the charges do not seem to have been out of line with general market charges, returns were low because the funds were placed on deposit at National Irish Bank. NIB yesterday said that CMI investors paid an entry fee of 1 per cent of the capital sum invested plus a quarterly management charge of 0.4 per cent, or 1.6 per cent annually. However, CMI gave The Irish Times a more complicated cost structure which the company said was offered to NIB customers between 1990 and 1994.

Three payment options were offered: Under option one, there was a management charge of 0.5 per cent per quarter for the first year on the greater of the original sum invested or the average of the value of the client's funds at the beginning and end of the quarter. This amounted to an annual charge of at least 2 per cent of the original investment. For the next seven years, the management charge was 0.25 per cent per quarter, or at least 1 per cent a year. Where a bond was encashed within three months, there was a charge of 4 per cent of the greater of the value at encashment or the original investment. After three months the penalty fell by 0.125 per cent per quarter. The second option involved a charge of 0.375 per cent per quarter for the first five years, or a minimum of 1.5 per cent a year. After five years, the management charge fell to 0.125 per cent per quarter, or 0.5 per cent a year.

Encashment in the first three months incurred a penalty of 5 per cent of the greater of the value of the bond on encashment or the value of the original investment. This penalty fell by 0.25 per cent in each subsequent quarter. The third option was a quarterly charge of 0.65 per cent of the original investment in the first year - 2.6 per cent for the year. In years two to five, the quarterly charge dropped to 0.4 per cent per quarter - or 1.6 per cent a year.

Encashment in the first three months resulted in a charge of 8 per cent. This penalty reduced by 0.4 per cent in each subsequent quarter. Figures from the Insurance Industry Federation show that entry charges to offshore products range between 3 to 5 per cent of the capital sum invested. In addition, investors face an annual management charges of 1 to 2 per cent.