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ECB Tower in Frankfurt am Main: Inflation has clearly outpaced savings interest rates
Photo:
Andreas Arnold / dpa
Many savers were hoping for a turnaround in interest rates.
The European Central Bank (ECB) has now announced that interest rates will come back from the end of July.
Still, it's going to be a disappointment.
The trouble was great in the past three years: More and more banks had demanded penalty interest from their investors.
Some already from 25,000 euros investment sum.
In talks, bank bosses openly admitted that they didn't want any additional money from customers.
So now the turnaround in interest rates is finally coming and still nothing is good for savers.
Not a single reputable interest product will make savers happy, because inflation has clearly outpaced savings interest.
For the current year, the federal government expects 6.1 percent inflation, the ECB for the euro area even 6.8 percent.
You don't have to be a mathematician to see that 0.5 percent negative interest rates with 1.5 percent inflation is better than 1 percent interest rates with 6 percent inflation.
In the first case, the money loses 2 percent in value per year, in the second case 5 percent.
Here is an overview of the most important interest-bearing products:
Call money
: The iron reserve belongs on the call money account.
And it's nice when interest is still being paid on the iron reserve.
But ultimately the iron reserve is there so that I, as a customer, don't slip into the overdraft facility when I have unplanned expenses.
Find an account with at least a small interest rate.
Fixed-term deposit:
This form of investment guarantees you a specific interest rate for a foreseeable period of time.
With fixed-term deposits, some banks are once again paying almost 1.5 percent interest a year if you invest your money for three years.
That is one percentage point more than last year.
If you can wait, you might get half a percent more in a few weeks.
But even 1.5 or 2 percent interest is no business when inflation is at 6 percent. Simple calculation.
At 1.5 percent interest, 30,000 euros will become 31,370 euros in three years.
At the same time, with inflation at 6 percent, purchasing power shrinks considerably.
The 31,370 euros saved are then only worth around 26,300 euros by today's standards.
Endowment life insurance:
The bill for many life insurance customers looks even worse.
For many years I said you shouldn't sign new contracts, and you shouldn't terminate old contracts.
With 1 to 2 percent inflation, 3.25 or even 4 percent guaranteed interest on the savings portion was a decent deal for risk-averse investors.
But with 6 percent inflation, 3.25 percent on the savings portion is a bad deal.
The money in the insurance contract is becoming less and less valuable.
But where are the alternatives for life insurance customers?
Of course you can cancel the life insurance or, even better, sell it, because then you have the money available again and can react to inflation.
But first of all, you then forego possible final surpluses, which often sweetened the end of the life insurance contract.
And secondly, a lot of cash is of course only sensible if I have a better investment idea afterwards.
There is currently no better fixed interest rate than 3.25 or 4 percent - as with the old life insurance.
Termination would only be helpful if you want to invest the money in a risky stock ETF, for example, or specifically in other systems: be it the large photovoltaic system on your own roof,
the energetic renovation of the property or the age-appropriate conversion of the same.
Without an investment idea, canceling an old life insurance policy is a crazy idea.
Pension insurance:
Of course, all the considerations regarding life insurance also apply to classic pension insurance that can be paid out.
Government bonds:
Safe government bonds have not brought any high returns in recent years.
The situation for investors here is now becoming even more difficult because the low interest rates are accompanied by price losses.
The reason for this: If you now own a slightly older bond from an EU member state with an interest coupon of 2 percent and this state is currently paying 3 percent for its fresh bonds with a similar term, this will lead to price losses.
Because nobody should want to buy the old bonds.
If the term is 10 years, the price loss is 8.5 percent.
Bond funds
: What applies to government bonds also applies to bond funds, which essentially invest in such bonds and which are now threatened with price losses with every interest rate step.
A fixed deposit for the next two to three years is often the better and safer idea.
Mixed funds
with a high proportion of bond funds struggle with the same price loss risk and are therefore usually not a good investment.
In addition, many banks have sold these products with expensive additional costs.
In the past ten years, many investors have achieved less than promised returns with such mixed funds.
Even clearer: A combination of a short-term time deposit and an equity index fund has left most mixed funds far behind in terms of returns.
If you have invested through a digital investment assistant (robo-advisor), you will also feel the price weakness of the bonds.
But as long as it fits into your long-term investment strategy, stick with it.
There are still two alternatives mentioned above:
Take on a higher investment risk.
Invest your capital in stock index funds.
In the past few decades, this has regularly brought significantly higher returns in the long term.
After 15 years, market-wide international equity funds such as an ETF on the MSCI World have not made any losses in the worst case - and have achieved nice returns of 7 to 9 percent a year on average.
You can even invest in ETF funds that take the ecological challenge more seriously than classic ETFs and that have yielded the same returns – at least in the past.
If you own a property, you have another alternative, which can be very attractive, to avoid inflation and low interest rates: Simply invest your money in your own home.
If you put money into better heating or insulation, you save a lot on heating costs.
The current cost trend for gas and oil already offers enough incentive to do this quickly.
Not to mention Putin's war in Ukraine.
In the next ten years, apartments and houses in this country will have to be massively retrofitted one way or the other.
Just as the combustion engine is being phased out as a model in cars, the classic combustion engine heater is also being phased out.
The legislature requires it one way or another because of climate protection.
If you belong to the baby boomers, then you have to slowly adjust to retirement anyway.
Then your apartment is probably still designed for families and young hoppers, less for the retired couple with the leisurely pace and one or the other health challenge.
Tackling the necessary conversion here is a nice project.
The quicker you do that, the more you nose out at inflation.