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Interest rates are rising, and more and more banks are luring investors with new offers for overnight and time deposit accounts. Which form of investment is worthwhile for whom? A comparison.
The interest rate at which banks can park money at the European Central Bank (ECB) is currently 3.75 percent. For the ninth time in a row, the ECB raised interest rates in July to combat inflation and make money more expensive. Savers can also benefit from rising interest rates if they invest their money in fixed-term or overnight accounts.
“Especially a call money account is worthwhile for everyone,” says Katharina Lawrence, consultant for financial services at the Hessian consumer center, in an interview with tagesschau.de. Since there is still practically no interest on current accounts, the “nest egg” should best be invested in a call money account.
Because the banks are now increasingly passing on the rising interest rates to their customers: Deutsche Kreditbank (DKB) recently increased its interest on the call money account – initially until January – for private customers from 1.0 to 3.5 percent. The C24 bank of the comparison portal Check24 is even offering four percent from September. ING with 3.5 percent per year or Santander with 3.7 percent also have particularly attractive offers for new customers – both initially for the next six months.
feel savings banks competitive pressure
Those who do not pass on the rising interest rates to their customers will feel the pressure of competition. According to calculations by the consulting firm PwC based on Bundesbank data for the “Handelsblatt”, the deposits of the savings banks and cooperative banks fell again in the first half of 2023 for the first time since the financial crisis. At the savings banks, they fell by 1.9 percent to 1.163 trillion euros as of the reporting date at the end of June, and deposits at the cooperative banks fell by 1.7 percent to 846 billion euros, as the business newspaper reported.
It is hardly surprising that customers opt for an account with the competition, given the interest rate of 0.6 percent that the Hamburger Sparkasse, for example, currently pays on a call money account. The other savings banks usually offer hardly any higher interest rates. At the Kreissparkasse Köln there is up to 1.50 percent and at the Sparkasse Dresden up to 1.30 percent interest.
Overnight money: Access your money at any time
Should savers invest their money in a fixed-term deposit account or an overnight deposit account? The decisive factor in this question is what you invest the money in. Not every form of investment is equally suitable for every saver, according to Katharina Lawrence from the consumer advice center in Hesse.
A call money account is particularly attractive for investors who want to put money aside on a regular basis, but at the same time want to have access to it at all times. It is true that no transfers can be made from a call money account to another account and no standing orders can be set up, for example for rent payments. But quick transfers to your own checking account are possible.
Fixed-term deposit: Fixed interest rate with a fixed term
Fixed-term deposit accounts do not have this advantage: With them, the money is invested for a fixed period of time – at a fixed interest rate that does not change over the investment period. This usually means that savers get higher interest rates on their fixed deposit accounts.
The disadvantage: the lack of flexibility. Withdraw money before the end of the term or invest additional money in the time deposit account as with the call money account is not possible with time deposits. “But with a fixed-term deposit account, money can be saved for large, planned purchases,” says Katharina Lawrence.
Most banks currently have the most attractive offers for a term of twelve months: on the Klarna Fixed Deposit+ account in the Klarna app there is 4.11 percent interest for a term of twelve months, while it has a term of 24 months at 4.01 percent.
Kommunalkredit Invest from Austria is also currently offering four percent per year for an investment period of twelve months. Deutsche Bank, on the other hand, currently only pays three percent interest for a term of twelve months. So it’s worth comparing.
More flexibility with a shorter runtime
In addition, investors can flexibly design the fixed-term deposit accounts with different maturities or an interest rate ladder. If fixed-term deposits are invested for a short period of time or in small amounts with different maturities, money is regularly free that can be reinvested again. This makes sense, especially in the current situation, because nobody knows how interest rates will develop in the coming months, according to Lawrence.
At her press conference at the end of July, ECB President Christine Lagarde left open for the first time whether the central bank will raise interest rates again at the next meeting in September. In view of the still high inflation in the euro zone – it was 5.3 percent in July – this is certainly possible, but not certain.
It is also unclear to what extent interest rates on overnight and time deposit accounts will continue to rise. However, it is considered likely that the banks’ interest rate offerings have not yet peaked. Especially at the beginning of the key interest rate hikes by the ECB, the financial institutions were very reluctant to pass them on to their customers.
protection by the deposit insurance
Anyone who compares offers from banks should pay particular attention to whether fixed-term deposit accounts are covered by deposit insurance, according to consumer advocate Lawrence. This means that savings deposits at banks are protected up to an amount of EUR 100,000 even in the event of bankruptcy. Covered are customer deposits such as account balances, the balance on call money or time deposit accounts and savings deposits.
“Theoretically, it applies to all banks within the European Union,” Katharina Lawrence emphasized in an interview tagesschau.de. However, she advises savers to check exactly where a bank is headquartered. Because the specific conditions and details for securing savings deposits may differ from the German regulations.