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Fixed-term deposit: How to get interest on your money

2022-10-22T16:55:26.716Z


The hunt for interest is worth it again: something has happened at many banks - up to three percent for a three-year fixed deposit are possible again. Why the trend may not be over yet.


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Bank skyline in Frankfurt: Something is slowly happening again

Photo: Boris Roessler / dpa

For the first time in years, it's worth looking at interest rates on investments.

In fact, some domestic banks are now offering three percent a year for a three-year fixed deposit.

Although that is less than the inflation to be expected during this period, it makes a difference: after three years, 20,000 euros in the fixed-term deposit account become almost 22,000 euros.

Much better than nothing.

When I looked at the interest rate table of my Finanztip colleagues, I was really amazed at the upward trend in interest rates.

The banks are old friends: the best three-year time deposit comes from Crédit Agricole Consumer Finance (CA Consumer Finance), the German investment subsidiary of a major French bank.

Six years ago it was way ahead, the bank, and I even presented its pronunciation »Kackf«, which is unusual for German-speaking ears, at this point.

Bausparkasse Mainz and AKF Bank pay two and a half percent interest for three years.

The people of Mainz paid very decent interest even during the financial crisis from 2007 to 2009.

And comparatively good overnight interest rates are offered not only by the (Auto-)Bank11 of the Rhenish Werhahn Group, but also by the industry giant ING.

For new customers, one percent interest is paid on their call money account for the first four months.

ING is at the forefront of an interest rate table for savers – it hasn't existed for more than three years.

The direct bank of the Frankfurter Sparkasse 1822 promises the percent interest on the call money account even for a period of six months.

The interest portal Weltsparen also has some attractive offers, for example from France.

Some regional banks are now offering relevant interest rates again for the first time.

And occasionally the week before World Savings Day is used for savings bargains.

The Volksbank Rhein-Lippe, for example, is offering an interest rate of 1.5 percent for two-year fixed deposits in the coming week.

In the past few weeks, savings interest rates have increased in many places at a rate reminiscent of the interest rate development for mortgage lending in the first few months of 2022.

And inflation has also climbed to an unimaginable ten percent a year ago. 

Adjust the investment

In fact, however, the development suggests that you should look at your investments in a more differentiated way.

In the days of low interest rates, fixed-term deposits were hardly worth it.

Many only had overnight money for the iron reserve and all plannable expenses for the coming years - and otherwise relied on a share ETF for long-term investment.

In the future it will be worthwhile again to invest money as a fixed deposit for expenses that can be planned in one, two or three years.

And to take the time to compare the offers carefully - and to look forward to hundreds of euros in interest.

Even if these interest rates are still far from compensating for the loss of purchasing power caused by inflation. 

You may be wondering if you should wait another six months.

If interest rates continue to rise, the interest rate offered could be even higher and the yield better.

With a call money account as a basis, you are flexible when you start.

Wait or strike

If you know that you need the money by January 1, 2026, for example, you can do the math.

You now invest EUR 20,000 at three percent, then you will receive EUR 600 in interest each year.

A total of 1800 euros.

If you now put the money in a call money account at one percent and after a year - let's say - four percent for then only 24 months, the calculation looks different: 20,000 euros become 20,200 euros in the first year.

And from 20,200 after another 24 months with four percent interest then just under 21,650 euros, around 150 euros less.

It's different if interest rates rise even faster and you get four percent after just six months.

You can cancel the daily allowance at any time.

20,000 euros become 20,100 euros in six months and 20,100 become 22,075 euros in the following 30 months at four percent interest.

The examples show, regardless of whether I invest the entire 20,000 euros for three years, or just wait and see: I make a bet.

If interest rates continue to rise quickly and the end date is fixed, it is worth waiting.

If the interest rate rises only slowly or not at all, it is not worth it.

You won't get rich with fixed deposits

As a long-term investment, even the four percent is still not worth it in a few months.

Just because of inflation.

My example calculation:

We are quite optimistic and assume that although inflation will be around 8% in 2023, it will then drop to 5% in 2024 and finally reach 2% again in 2025.

At the end of 2025, according to the optimistic four percent scenario, 22,075 euros would be in the account.

The purchasing power of my former 20,000 euros would only be 19,100 euros due to inflation over the three years.

With three percent interest throughout, the purchasing power of my investment would even shrink to 18,900 euros.

In other words: With the current inflation, it is not worth seeing a time deposit account as a profitable investment.

Rather, such a fixed deposit account offers a safeguard for the savings that I already know that and when I want to spend it.

As well as a stability anchor for my equity fund.

In fact, this has been the case for many years.

For almost 20 years, fixed-term interest products have hardly been able to ensure that the value of the savings is retained.

The second account – does something, costs nothing

If you've read this far and are asking yourself: »Yes, where are they going to rise, interest rates?

Not yet at my house bank?' I can tell you: You're (still!) in company there at the moment.

More and more banks are taking part in the turnaround in interest rates, but with around 1,400 different savings banks, cooperative banks and private banks in Germany alone, many institutions have still not marched off.

Only the »custody fee« has been deleted, but 0.0 percent is still announced for the savings account.

Finanztip asked some of these late bloomers: DKB and Commerzbank want to offer call money interest again from December.

Deutsche Bank has at least a one-year fixed-term deposit for 0.65 percent, but in its current price display it unperturbedly presents the savings account interest rate of 0.001 percent and right next to it the ECB interest rate of 1.25 percent, which is over a thousand times higher.

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Some of the regional banks asked also gave disappointing answers: overnight interest rates are currently non-existent.

There is a simple counter-recipe, if your house bank does the same - find a stable second or third bank and use their higher interest rates for part of your money.

Pay attention to a reputable deposit insurance and do not put all your eggs in one basket.

As far as interest rate developments in the near future are concerned, we should get more clarity next Thursday.

Because then the next key rate decision by the ECB Council is due.

There is much to suggest that the monetary watchdogs will once again raise interest rates by a significant step.

In the long run, you need an ETF

For long-term investments, in addition to your own property, you still have a custody account with ETFs on shares that are spread around the world and on the market.

You would have seen serious losses in the past twelve months - in dollars around 20 percent, in euros thankfully only six percent because of the exchange rate development.

But that's just a snapshot.

In the long term, things are looking much better: even if you had invested in the market-wide MSCI World Index in autumn 2008, immediately before the crash of the financial crisis, the nominal value of your portfolio would have more than doubled to date.

And so , even taking inflation into account , there would still have been a very decent return .

In contrast, the interest rate products cannot stink.

Source: spiegel

All business articles on 2022-10-22

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