Is now the best time to open a savings account in Germany?
Interest rates are on the rise, with some banks now offering as much as 3 percent on savings accounts. Here's why it could make sense for people in Germany to stash some money away now.
After years of rock-bottom rates, interest is on the rise for customers in Germany once again - which is bad news for borrowers, but great news for savers.
Following moves by the European Central Bank (ECB) to hike interest rates in the final months of 2022 and the first three months of 2023, German banks have been revising their offers to customers and wooing newcomers with even more attractive offers.
Most recently, ING released a new promotional offer: customers can get up to three percent interest on their savings for a full six months. That equates to €150 interest on €10,000 after just half a year.
The offer is available not just for switchers but also for existing customers, encouraging people to withdraw cash from other accounts and add it to their ING savings account.
Meanwhile, competitors such as comdirect, Targo Bank and Consors are offering between 2 and 2.4 percent interest on savings.
READ ALSO: Why 2023 will be a better year to grow your savings in Germany
Will other banks follow suit?
According to Max Herbst, a consultant at Frankfurt-based financial consultancy FMH, the latest promotion from ING will place other banks under pressure to compete.
"This is typical ING, they want to make money - and at the expense of other banks," Herbst told Taggeschau. "Because the offer is not only for new customers, but also for the so-called 'fresh money'."
This means that existing ING customers are still likely to reconsider where they put their money and potentially divert funds from other savings accounts into the bank with the highest interest rates - at least for the next six months.
"The competition is now under pressure to catch up with ING," Herbst added. "The other big 'call money banks' are certainly already sitting in the starting blocks."
Competitive deals could emerge at any time, so opting for a flexible bank account that allows customers to withdraw savings at short notice could be the best option.
However, Herbst recommends that people in Germany start saving right away rather than waiting for potential further rate hikes and banking deals.
"Every day that customers wait now is one day too many," he explained. If numerous customers start to switch, it could also encourage banks to offer more competitive rates.
"The more customers leave, the greater the pressure on the banks," Herbst added.
Opening a new bank account - or switching from your existing provider - has also become much simpler recently.
Normally the process involves filling in an application online in a few minutes and then verifying your identity via video chat using the so-called "Video-Ident" procedure.
READ ALSO: The complete guide to opening a bank account in Germany
What to consider when picking a savings account
When finding the best deal on a savings account, it's worth paying attention both to the interest rate and how long it lasts.
With many sign-up promotions capped at a certain amount of months, it's not always easy to work out which will be the best offer for growing your money, so be sure to use an online interest rate calculator to work out which deal gives you the best return.
A man withdraws money from an ATM. Photo by PHILIPPE HUGUEN / AFP
Suresse Bank, a subsidiary of the Spanish bank Santander, currently offers 3.008 percent interest - but only for four months. So while it may be worth taking up this offer, some customers may be better off opting for a slightly lower interest rate over a longer period of time.
The other key thing to be aware of is the fact that interest rates could go up again if the ECB decides more rate hikes are necessary in order to combat inflation.
That means people who want to get the best deal should be prepared to switch banks after a relatively short amount time and keep an eye out for new offers.
"You should not let yourself be guided by convenience when it comes to a call money account, because every new customer eventually becomes an existing customer," said Herbst.
However, you should note that having too many accounts open at once can potentially affect your credit score, so try and close any unused accounts when you can.
Is my money safe in a savings account?
Following the recent turmoil in the banking sector, customers are increasingly keen to make sure their money is safe.
The best way to this is to ensure that any savings account is covered by the German deposit guarantee, which ensures amounts of up to €100,000 per customer are protected under EU law.
Financial experts at Stiftung Warentest also recommend banks that are based in economically strong EU countries. This would mean that banks in Spain - such as the aforementioned Suresse Bank - but also institutions in Portugal, Ireland, Italy or Poland are ruled out.
A sign of Swiss bank Credit Suisse is seen in Basel. Credit Suisse was recently bailed out in an emergency deal after heading towards bankruptcy. Photo: Fabrice COFFRINI / AFP)
However, FMH expert Herbst doesn't believe the risks of using these banks is too high. "The probability that I will make losses as a saver in Europe with any call money account and an investment sum of up to €100,000 is close to zero."
In Germany, moreover, many German private banks belong to the voluntary Deposit Protection Fund of the Association of German Banks. So can overnight savers safely invest more than €100,000 here? "Anything over €100,000 is a voluntary promise by the banks," says Herbst. "If you really want to be on the safe side, you should split amounts over €100,000 among several banks."
REAED ALSO: EXPLAINED: How America's banking crisis could hit consumers in Germany
Less than inflation
With inflation estimated to have hit around 7.4 percent in the first quarter of the year - and remain high throughout 2023 - banking customers should be aware that their money will generally be losing value in a savings account, even though interest rates are higher.
Though fixed-term savings accounts can often offer more competitive rates, the downside is that you have far less access to your money in the case of emergencies, and may be locked in to a rate that becomes less competitive over time.
READ ALSO: How to protect your savings against inflation in Germany
In contrast to this type of savings account, a call-money account is generally intended to offer an emergency fund for unexpected situations like an expensive car or home repair or a sudden job loss.
For people with much larger savings - i.e. well above three or six months' salary - this type account may not make the most sense.
After putting aside an emergency cushion, Herbst suggests that bigger sums could get a better yield in investments or EFTs.
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After years of rock-bottom rates, interest is on the rise for customers in Germany once again - which is bad news for borrowers, but great news for savers.
Following moves by the European Central Bank (ECB) to hike interest rates in the final months of 2022 and the first three months of 2023, German banks have been revising their offers to customers and wooing newcomers with even more attractive offers.
Most recently, ING released a new promotional offer: customers can get up to three percent interest on their savings for a full six months. That equates to €150 interest on €10,000 after just half a year.
The offer is available not just for switchers but also for existing customers, encouraging people to withdraw cash from other accounts and add it to their ING savings account.
Meanwhile, competitors such as comdirect, Targo Bank and Consors are offering between 2 and 2.4 percent interest on savings.
READ ALSO: Why 2023 will be a better year to grow your savings in Germany
Will other banks follow suit?
According to Max Herbst, a consultant at Frankfurt-based financial consultancy FMH, the latest promotion from ING will place other banks under pressure to compete.
"This is typical ING, they want to make money - and at the expense of other banks," Herbst told Taggeschau. "Because the offer is not only for new customers, but also for the so-called 'fresh money'."
This means that existing ING customers are still likely to reconsider where they put their money and potentially divert funds from other savings accounts into the bank with the highest interest rates - at least for the next six months.
"The competition is now under pressure to catch up with ING," Herbst added. "The other big 'call money banks' are certainly already sitting in the starting blocks."
Competitive deals could emerge at any time, so opting for a flexible bank account that allows customers to withdraw savings at short notice could be the best option.
However, Herbst recommends that people in Germany start saving right away rather than waiting for potential further rate hikes and banking deals.
"Every day that customers wait now is one day too many," he explained. If numerous customers start to switch, it could also encourage banks to offer more competitive rates.
"The more customers leave, the greater the pressure on the banks," Herbst added.
Opening a new bank account - or switching from your existing provider - has also become much simpler recently.
Normally the process involves filling in an application online in a few minutes and then verifying your identity via video chat using the so-called "Video-Ident" procedure.
READ ALSO: The complete guide to opening a bank account in Germany
What to consider when picking a savings account
When finding the best deal on a savings account, it's worth paying attention both to the interest rate and how long it lasts.
With many sign-up promotions capped at a certain amount of months, it's not always easy to work out which will be the best offer for growing your money, so be sure to use an online interest rate calculator to work out which deal gives you the best return.
Suresse Bank, a subsidiary of the Spanish bank Santander, currently offers 3.008 percent interest - but only for four months. So while it may be worth taking up this offer, some customers may be better off opting for a slightly lower interest rate over a longer period of time.
The other key thing to be aware of is the fact that interest rates could go up again if the ECB decides more rate hikes are necessary in order to combat inflation.
That means people who want to get the best deal should be prepared to switch banks after a relatively short amount time and keep an eye out for new offers.
"You should not let yourself be guided by convenience when it comes to a call money account, because every new customer eventually becomes an existing customer," said Herbst.
However, you should note that having too many accounts open at once can potentially affect your credit score, so try and close any unused accounts when you can.
Is my money safe in a savings account?
Following the recent turmoil in the banking sector, customers are increasingly keen to make sure their money is safe.
The best way to this is to ensure that any savings account is covered by the German deposit guarantee, which ensures amounts of up to €100,000 per customer are protected under EU law.
Financial experts at Stiftung Warentest also recommend banks that are based in economically strong EU countries. This would mean that banks in Spain - such as the aforementioned Suresse Bank - but also institutions in Portugal, Ireland, Italy or Poland are ruled out.
However, FMH expert Herbst doesn't believe the risks of using these banks is too high. "The probability that I will make losses as a saver in Europe with any call money account and an investment sum of up to €100,000 is close to zero."
In Germany, moreover, many German private banks belong to the voluntary Deposit Protection Fund of the Association of German Banks. So can overnight savers safely invest more than €100,000 here? "Anything over €100,000 is a voluntary promise by the banks," says Herbst. "If you really want to be on the safe side, you should split amounts over €100,000 among several banks."
REAED ALSO: EXPLAINED: How America's banking crisis could hit consumers in Germany
Less than inflation
With inflation estimated to have hit around 7.4 percent in the first quarter of the year - and remain high throughout 2023 - banking customers should be aware that their money will generally be losing value in a savings account, even though interest rates are higher.
Though fixed-term savings accounts can often offer more competitive rates, the downside is that you have far less access to your money in the case of emergencies, and may be locked in to a rate that becomes less competitive over time.
READ ALSO: How to protect your savings against inflation in Germany
In contrast to this type of savings account, a call-money account is generally intended to offer an emergency fund for unexpected situations like an expensive car or home repair or a sudden job loss.
For people with much larger savings - i.e. well above three or six months' salary - this type account may not make the most sense.
After putting aside an emergency cushion, Herbst suggests that bigger sums could get a better yield in investments or EFTs.
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