If you put your money in secure forms of investment such as savings accounts, call money and time deposits, you will hardly get any interest on them. We give you tips on how you can still increase your money.
The essentials in brief:
- If you want to invest your money as securely as possible, the situation is currently bleak. If you put your money in secure forms of investment such as savings accounts, call money and time deposits, you will hardly get any interest on them.
- The first banks are already demanding negative interest. This means that savers not only do not receive any interest, but also have to pay for investing money.
- When investing, it is always advisable to spread the money across different product classes and maturities.
- Also think in advance what you want to achieve with the investment. Depending on the investment objective, very different forms of investment are suitable or unsuitable.
Over the past few years, there has been a downward trend in call money, time deposits and the like. Example of overnight money: Currently, even the top providers on the market offer just under 0.3 percent. At many banks, interest rates are rather bobbing in the range between 0.0 and 0.1 percent.
Inflation was low for many years. But in 2021 this increased and in spring 2022 it will be almost 5 percent. The combination of de facto non-existent credit interest for safe investments and the increased inflation ensure that the money invested in this way loses value every month. This real loss in value is already a negative interest rate.
At the beginning of the year you invested EUR 1,000 at an interest rate of 0.5 percent. If you had spent the money instead, you would have received $1,000 worth of goods and services in return.
At the end of the year you have EUR 1,005 in your account (credit + interest). If you spend the money, your 1,005 euros – with an assumed inflation of 1 percent – only have a purchasing power of just under 995 euros. In fact, despite the interest payment, you are in a worse position than at the beginning of the year.
If you invest the 1,000 euros for ten years at an interest rate of 0.5 percent, you will end up with a capital of just under 1,051 euros with interest and compound interest. If inflation is consistently 1 percent during this period, your purchasing power is around 951 euros. The real loss is therefore increasing from year to year. Since inflation in spring 2022 is even just under z percent, the loss is correspondingly higher.
However, the solution to the problem does not lie in spending one’s money as quickly as possible, but rather in spreading it appropriately across different product classes.
A few years ago, the possibility of deflation was even considered. It’s sort of the opposite of inflation. Deflation means that prices stop rising and fall. For example, if you buy goods and services for 1,000 euros today, with 1 percent deflation you would only have to spend 990 euros a year later. For individuals, deflation makes saving more attractive again. From an economic point of view, however, deflation would be extremely worrying, since the prospect of further falling prices means that too little is consumed.
Then companies can sell fewer goods and services, lay off employees due to lower demand and a vicious circle begins. The European Central Bank is therefore considering what monetary policy measures can be taken to avert the risk of deflation.
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Credit institutions are increasingly demanding extra fees from their customers if their account balance exceeds a certain limit. Where this limit lies seems to differ from bank to bank. It has not yet been finally clarified whether they are allowed to do this at all.
The podcast was created as part of a project funded by the Federal Ministry of Justice and Consumer Protection.
Look for cheaper account providers
Some banks are now charging so-called custody fees for money market and current accounts. Many also speak of “negative interest”, “minus interest” or “penalty interest”. In some cases, this applies to credit balances of, for example, 50,000 or 100,000 euros. However, some credit institutions charge such fees from new customers from the very first euro credit.
You can find an objective price comparison at Stiftung Warentest. By the way, banks have to help with easy account switching to a new provider.
In any case, one is recommended when investing wide spread across different product classes and maturities. Among other things, investors can also achieve protection against inflation.
In addition to overnight money, fixed-term deposits and savings, the purchase of investment funds, real estate (funds), precious metals or shares can also be considered. In principle, investments in tangible assets (stocks, stock funds, real estate) are suitable as a means of combating inflation. But here, too, the investor must not blindly access. What the concrete division should look like varies greatly from person to person. This depends on the amount of assets, but of course also on personal willingness to take risks. However, this approach does not offer fully comprehensive insurance against currency depreciation either.
Daily allowance and fixed deposit
Savings accounts, time deposits and overnight money are very safe forms of investment, which makes them a central component of any investment. The reason for this is the statutory deposit insurance. In the event of a bank failure, 100,000 euros per bank and customer are protected. However, banks and savings banks have only offered interest rates below the inflation rate for these forms of investment for years.
Nevertheless, it is advisable to regularly check whether the interest rates of your own bank (still) correspond to the top conditions on the market. If not, savers can consider changing banks. Suitable overviews can be found at Stiftung Warentest, for example. If you don’t want to change your bank all the time, you can limit yourself to banks that have offered good conditions in the past. The Stiftung Warentest, as well as comparison portals on the Internet, highlight corresponding providers in their overviews.
Ideally, you should save an amount equal to at least two to three monthly net incomes in a call money account. With such an iron reserve, one can respond to unforeseen expenses quickly and without borrowing.