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MONEY

EXPLAINED: What Germany’s relief package against rising prices means for you

The German government recently agreed a raft of measures aimed at providing financial relief to residents facing ever-rising consumer costs. Here's a look at how it affects you.

A person changing the heating setting on a radiator. The coalition has pledged financial support people in Germany.
A person changing the heating setting on a radiator. The coalition has pledged financial support people in Germany. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

Germany is beefing up financial support measures due to rising costs of everyday goods and staggeringly high energy prices.

Last week, the government, made up of a coalition between the Social Democrats (SPD), the Greens and the Free Democrats (FDP), pledged €13 billion in relief to German residents. 

Ricarda Lang, chairwoman of the Green Party, said that people in Germany should receive support in the short term and in a targeted manner.

“This is a strong package with which we have an offer for the whole society, and I think especially in difficult times offers a form of security anchor for the people in this country,” Lang said. 

But who will benefit from the relief – and what savings are possible?

Abolition of the Renewable Energy Act (EEG) levy

A key point of the package is that consumers in Germany are to stop paying the EEG levy via their electricity bills as early as July. Previously, Germany planned to ditch the EEG at the beginning of 2023.

“We will not leave people alone in the current situation,” Finance Minister Christian Lindner said after announcing the plans last week. 

The EEG levy adds 3.723 cents per kilowatt hour to energy bills. So if you consume 1000 kilowatt hours (kWh) of electricity per year as a single person, this could bring you a saving of €37 plus VAT, i.e. €44. The money will be credited to your annual bill, at least if the providers pass on the relief in full, which is what the coalition is pushing for – but it has not made it compulsory (at least yet).

For a family with a consumption of 4000 kWh, there would be a saving of €180. The money automatically lands in your electricity account, you don’t have to take any action.

A plug

Photo: picture alliance/dpa | Demy Becker

Commuter allowance relief

Due to the high fuel prices, the traffic light coalition plans to raise the commuter allowance which people can claim in their tax returns.

The increase in the lump sum for long-distance commuters (from the 21st kilometre onwards), due on January 1st 2024, is to be brought forward. Commuters will be allowed to claim 38 cents for each km retroactively from January 1st 2022 (an increase from 35 cents).

Note that you can only claim one-way travel per working day.

The Greens in particular were sceptical about this. However, it has now been agreed that a reorganisation of the commuter allowance will be sought before the end of this legislative period, which should better take into account the “ecological and social concerns” of mobility.

When it comes to commuting, let’s take the example of coalition leaders: Robert Habeck (Greens) has his constituency in Flensburg, Lars Klingbeil (SPD) in Soltau in Lower Saxony and Rotenburg an der Wümme. For an employee, it is almost 90 kilometres from Flensburg to Kiel, 100 kilometres from Soltau to Bremen and 50 kilometres from Rotenburg to Bremen.

If workers take 200 days a year to make these journeys to work, they can declare €180 of extra costs in their taxes if they are from Rotenburg, €360 if they are from Flensburg and as much as €420 if they are from Soltau. Depending on the tax rate, this brings relief of between €100 and €200 a year.

Working from home is more favourable for many taxpayers and tax offices. However, the benefits of the increased allowance will only be felt after the submission of the next tax return. Until then consider driving fuel-efficiently, or try to switch to an electric car.

Rise of basic tax-free allowance and lump sum allowance

The increase of the basic tax-free allowance from €9,984 to €10,347 and the increase of the employee’s lump-sum allowance (Werbungskosten-Pauschale or Arbeitnehmer-Pauschbetrag) from €1,000 to €1,200 will also provide some tax relief. These will apply retroactively from January 1st 2022.

This will bring a total of about €120 relief for a single person with €50,000 taxable annual income.

Immediate supplements for socially disadvantaged residents

Children affected by poverty are to receive an immediate supplement of €20 per month as part of child support from July 1st.

Recipients of unemployment benefit II (known as Hartz IV), basic income support and social assistance are to receive a one-time supplement of €100.

The money is supposed to come automatically from the government. However, it is not yet clear when it will be paid out. People who do not receive the children’s allowance (Kinderzuschlag) will have to apply for it to get the money. 

READ ALSO: How Germany plans to help households cope with rising costs

Heating cash boosts

The coalition’s 10-point list also includes a mention of the heating allowance which was already approved by the cabinet.

Recipients of housing allowance will receive €135 as a single person, two-person households €175, and a family of four €245. But keep in mind that you have to be receiving housing benefit to get this allowance. Up to two-thirds of households entitled to housing benefit have reportedly not applied for the allowance. Housing benefit is paid retroactively from the date of application.

Students who receive BAföG will also receive a one-time heating allowance of €115 from June. However, they must submit an application for the support.

Tax assistance in the Covid period.

The ‘home office’ allowance will be extended. It means that those who do not travel to work can deduct €5 per day for 120 days a year from their taxable wages. However, a tax return must be filed to claim this. 

READ ALSO: German government to extend ‘working from home’ allowance

If the employer tops up the reduced working hours (Kurzarbeit) allowance, the top-up is paid net to the employee, as was already the case in the Covid crisis months. 

In 2022, employees in the care sector can receive another tax-free Covid bonus of up to €3,000, which will be paid in addition to their regular salary. 

Minimum wage boost

According to the federal government’s draft law, the minimum wage will be raised to €12 per hour from October. Currently it is €9.85, from July 2022 it will be €10.45 according to the current law. If you work just under 1,600 hours a year, i.e. 130 hours a month, your monthly wage will rise from €1,280 euros to €1,560 euros if you are only paid by the hour.

The minimum wage is being increased in Germany.

The minimum wage is being increased in Germany. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

If you are paid for a 40-hour week, you will receive about €2,040 a month from October instead of €1,675. Talk to your employer about the implementation.

And as a mini-jobber, make sure that you do not break the limits with your new hourly wages and end up having to pay taxes and social security contributions. However, the mini-job limit is set to increase from €450 to €520 under the new government. 

READ ALSO:

Reduced working hours (Kurzarbeit) until summer

Anyone who receives the reduced working hours allowance (Kurzarbeit) from their employer can receive this allowance until the end of June.

The maximum duration has been extended to 28 months. As a worker on reduced hours, you are allowed to work in a mini-job at the same time without it being counted towards your short-time allowance.

What happens next?

Some of the measures in the 10-point plan have already been approved in the Bundestag, and the others will be fast-tracked through parliament, the coalition said.

In view of the war in Ukraine, the coalition is also considering further aid to support those who have been economically affected by the consequences of the war. 

Please keep in mind that our explainers are for guidance only and are not intended to take the place of legal advice. 

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MONEY

Why German bank customers could soon pay less for their account

A major German bank is set to scrap fees on large balances - and a number of others look set to follow. Here's why people in Germany may be paying less for their savings or current account in the near future.

Why German bank customers could soon pay less for their account

What’s going on? 

Interest rates have been at rock-bottom levels for years, making it much harder for people to get returns on their savings.

In recent years, many banks have even been levying what’s known as negative interest rates on customers. If interest normally incentivises people to save by helping them to grow their money, negative interest basically does the opposite.

If you have a certain amount of money in the bank, your bank will charge you negative interest via a deposit holding fee, which will usually be a certain percentage of your balance.

With N26, for example, balances of over €50,000 are subject to a 0.5 percent fee each year. For a balance of exactly €50,000, that equates to €250 in bank charges just for keeping your money there. 

Some banks even charge a deposit holding fee for balances as low as €5,000 or €10,000 in a current account. 

On Tuesday, ING Deutschland became the first bank to announce that it would be scrapping negative interest rates for the vast majority of its customers.

From July 1st, new customers of ING will be able to deposit up to €500,000 in their account without being charged for it, while existing customers will automatically have the fee-free amount raised to €500,000 from the current €50,000. 

Now, it seems a number of other German banks are planning similar moves. 

Why is ING Deutschland ending the holding fee?

Not entirely out of the goodness of its own heart – though that doesn’t stop it being good news for customers.

The European Central Bank (ECB) is set to make a decision on interest rates in the bloc this July, and most people expect that the bank is poised to increase interest rates from minus 0.5 percent to zero. 

Since banks have basically been passing on the ECB’s fees to their own customers, a hike in the ECB’s interest rate would spell the end of most negative interest-rate accounts in any case. But ING Deutschland said it wanted to pass on the positive interest rate trend to its customers even earlier.

READ ALSO: EXPLAINED: How to save money on your taxes in Germany

“With the increase in the fee-free allowance for credit balances on the current and extra accounts, the deposit fee is no longer applicable for 99.9 percent of our customers,” said Nick Jue, chief executive officer of ING in Germany. “We were one of the last banks to introduce a deposit holding fee and one of the first to virtually abolish it.”

He added that the bank had already kept its promise to abolish the holding fee for almost all customers before the European Central Bank made its decision.

Does this have anything to do with that court decision on bank charges?

That’s definitely a factor. According to a decision in Germany’s Federal Supreme Court last year, credit institutions have to obtain the consent of their customers when making changes to their fees and conditions.

That means that financial institutions have to ask for consent to current fees retrospectively if they don’t want hoards of people trying to claim their money back.

If a customer doesn’t consent to the fees, the bank will usually close that customer’s account.

Man signs a contract

A man in a suit fills in an official form. Photo: picture alliance/dpa/Pixabay | hnw-Gruppe

According to ING Deutschland, the scrapping of negative interest rates on balances up to €500,000 may help to sway those customers who have not yet agreed to the latest terms and conditions – including the deposit holding fee.

Anyone who agrees to the Ts&Cs will automatically be given the higher allowance as of July 1st.

“ING Deutschland expects that the increase in the allowances will convince in particular those customers who have not yet agreed to the General Terms and Conditions including the holding fee, and that the bank will thus terminate fewer customers than last planned,” ING said in a press release. 

READ ALSO:

What other banks are planning to do this?

According to reports in Bild and Bialo, the other banks planning on ending negative interest rates (or raising the threshold for fee-free balances like ING Deutschland has done) include:

  • Deutsche Bank
  • Commerzbank
  • Deutsche Apotheker- und Ärztebank (Apobank)
  • Dortmunder Volksbank
  • Hamburger Sparkasse (Haspa
  • Frankfurter Sparkasse
  • Frankfurter Volksbank
  • Mittelbrandenburgische Sparkasse
  • Nassauische Sparkasse (Naspa)
  • Ostsächsische Sparkasse Dresden
  • Sparda-Bank München
  • Sparda-Bank Südwest
  • Sparda-Bank West
  • Sparkasse Hannover
  • Sparkasse Pforzheim Calw
  • Volksbank Stuttgart

What does this mean for my savings?

There’s good news and bad news.

The good news is that, from July, you’ll no longer have to pay exorbitant charges just to store your money in a safe place – and you won’t be penalised for saving more. The bad news, on the other hand, is that low interest rates aren’t going away anytime soon.

So while you won’t be losing money hand over fist, you won’t be earning much of a return on your savings either.

Banks in Frankfurt

Skyscrapers in the financial district of Frankfurt am Main. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

“If the interest rate environment continues to develop positively, we will also let our customers participate in this development,” said ING Deutschland’s Nick Jue. “However, the low-interest phase will continue for the time being and broadly diversified investments will remain important.”

Getting a securities account where your money is invested is one way to try and grow your savings, as is investing in property.

Of course, people with mortgages and other loans benefit from the low interest rates – which could be why the German property market is currently booming. 

READ ALSO: Five ways Germany’s soaring inflation could affect your life

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