The majority of people who take out savings and investment plans do not continue paying into the policy until maturity. Up to 20 per cent of these policies are cashed within the first two years and if there have been high initial set-up charges, the investor will lose money.

There are certain things you need to know when you are choosing a savings or investment plan and it makes sense to decode the charges first.

If you could predict which fund would perform best, then charges would be less important, but when high charges mean returns are reduced by up to 25 per cent or it takes five years of monthly payments before you break even, it pays to do the research.

Essentially there are two ways commission can be paid. With full commission, the broker or company takes up the full commission for the term of the policy from the first year's contributions. In the case of level commission, a certain percentage of the investor's contribution is taken for commission each year. Then there are the set-up charges, made up of the policy fee and the bid/offer spread.

An independent survey of charges in the unit-linked savings industry has found that certain companies have set-up charges and commissions which absorb up to 75 per cent of the first year's savings.

That means if you are forced to cash in your policy at the end of the first year, you will have lost most of your investment. Most insurance companies' savings plans are set up on a full commission basis so that if you cash it any time within the first five years, you won't get all your money back.

Compare that with Equitable Life's Unit Linked Fund, which breaks even by the end of the first year and at the end of the 20-year term pays out approximately an extra £1,500. That's based on a level contribution of £100 per month and assuming a growth rate of 8 per cent.

If you think that the early surrender scenario is irrelevant because it will not apply to you, think again. Some financial advisers recommend that savers should not commit themselves to inflexible 20-year savings plans.

Less than 10 per cent of policyholders make it to the full term of an investment or saving plan. The best intentions are usually overtaken by lifestyle changes or the unexpected need for a lump sum.

Mr John Gilmartin of the fee-based financial advisers Business & Financial Planning advises anyone who is setting up a contract for any regular investment (including pensions) to look for a regular premium plan costed on a single premium basis.

In other words, you only pay charges when you are paying into the plan and if you take a break at any stage, the charges also take a break.

According to the survey, funds with no set-up charges such as The Equitable Life Unit Linked Fund, Quinn Life Trackers, EBS Summit Funds, Ark Life PIPs and PEPs, Eagle Star PIPs, Irish Life PEPs and Lifetime PIPs and PEPs offer better value on various counts.

Firstly they deliver much higher surrender values in the early years. As well as that you can increase the contributions at any time. If you want to increase your monthly savings in a product with set-up charges you face the full initial charges on any increase.

It is imperative to seek as much flexibility as possible when you are setting up a savings plan because the only thing you know about the next 10 or 20 years is that you cannot predict what will happen.

The survey of charges was carried out by Mr Brendan Burgess, a chartered accountant who runs the financial discussion website www.askaboutmoney.com. He said he decided to do the work when he discovered that some funds still had what amounted to nil-allocation periods, i.e. no money was invested for an initial period while charges were paid.

One of the main points contained in his report is that past performance is of no relevance in predicting the future. Experts within the insurance industry generally give past performance a 15 per cent weighting when they are evaluating the prospects of a fund.

According to Mr Burgess, brochures don't deal adequately with the costs of buying, selling and managing the investments. Only one brochure in the survey contained a table which clearly showed the poor early encashment values, and most brochures do not show the set-up charges.

The whole area of charges is a bit of a swamp, so, past performance aside, the best way to establish which savings or investment plan is best value is to ask the following question: How much will the projected yield or return be reduced by when all the charges are factored in compared to what it would be without any charges at all?

High charges could reduce the net investment return from 7 per cent per annum to less than 5 per cent.