Interview: What interest rates savers can expect this year

So far, high inflation has also eaten up the benefits of rising interest rates. But that could change this year. In an interview, investment expert Christian Kopf explains what that means for savers.

tagesschau24: Can people imagine what the term real interest rate is?

Head: We regularly ask our private customers about terms from the world of finance. This year we asked about the real interest rate and found that two thirds of our customers understood the term. 60 percent of those surveyed actually assume that inflation will eat up interest income. They’re right to some extent, because that’s exactly what happened last year. It will probably not be the case in the future.

tagesschau24: Do people adapt their saving behavior to inflation?

Head: Unfortunately, many do not. There are many people who continue to hold their assets as sight deposits in banks because of their need for security. That’s not wrong in itself, you should always have a part of the money ready as a nest egg. However, given the high level of inflation, we believe it is unwise to simply leave very large amounts of money lying dead in the account. And a lot of bank customers in Germany still do that.

Still little interest, for example for call money

tagesschau24: In your opinion, saving on the account makes no sense. But what is the right way to save in times of high inflation?

Head: It is true that demand deposits at banks are slowly increasing again and the banks are very slow in passing on these higher deposit rates, which the Deutsche Bundesbank pays them, to customers. Despite this, the sight deposits provided by the banks still have very low interest rates compared to what one can earn on the capital market. That’s why you have to say: investing today is the right way to save.

tagesschau24: Are people worried about their savings?

Head: Yes, people are very worried. Two-thirds of respondents in our survey said they were concerned about their savings. That’s the highest number we’ve measured since we started this survey. The value has even increased compared to last year.

And it has to be said that this concern is absolutely justified when you look at what has happened in the last year. Inflation was record high – in Germany it was the highest rate since World War II. At the same time, people lost money on their investments, which means they ended up losing on both sides. Stock prices and bond prices have fallen, and then at the same time you have had to deal with inflation. So you can understand why people are worried. Nevertheless, I don’t really see these large real losses in capital investments in the future.

tagesschau24: Why not?

Head: We currently have an inflation rate of 7.4 percent in Germany, which was so high recently mainly because of the high energy prices. However, the inflation rate is slowly declining slightly again. We expect inflation to be around 3.5 percent over the next 12 months. If you achieve a profit of more than 3.5 percent with an investment over the next twelve months, then you have a positive real interest rate. And we think that’s entirely possible.

“The patience of the farmer pays off”

tagesschau24: Do you also believe that there is still room for improvement on the stock markets? After all, the DAX is currently at a very high level.

Head: I think that if you invest your money here, you should leave the perspective of the grain trader who always wants to buy cheap and sell dear to a certain extent behind. One should rather take the perspective of a farmer looking at the return on investment. We are now in a situation where there is a real return on capital on both the interest rate side and the equity side. We are coming out of a period of several years when interest rates were either zero or at least very, very low.

Now we have a situation where we can earn 3 percent interest on money market funds and 4 percent on corporate bonds. The return on earnings is also around eight percent for the DAX, with international stocks at six percent. So there is definitely an opportunity for us to make money just by investing and being patient. In my opinion, this idea that you always have to buy low and sell high is not suitable for wealth accumulation. And we are now in a situation where the patience of the farmer who just invests his money and puts it to work is paying off.

The capital market is becoming more interesting

tagesschau24: The Germans are well known for being willing to save a lot. How much are you saving?

Head: Yes that’s right. In an international comparison, the Germans save quite a lot, as we found out again in our survey. 70 percent of the people we surveyed say that they save regularly – and sometimes even relatively large amounts, sometimes over 250 euros a month.

tagesschau24: However, the Germans are not exactly known for being willing to invest their money in a risky manner. How do you save?

Head: People mainly invest their money in real estate. 65 percent of savings goes into real estate and only about 30 percent into mutual funds and stocks. In recent years, real estate has also been a good investment, after all, real estate interest rates have been very low. At that time, if you could buy a property for your own use or a property used by others with these low interest rates, then that was a good thing.

But things are different now. Interest rates have risen significantly, as have real estate prices. At the same time, stocks and bonds are becoming more attractive again because they also offer attractive returns. I think that this trend of investing mainly in real estate will change in the next few years, because the interest rates for real estate have become more expensive, and investments in the capital market are now making good money again.

tagesschau24: However, you say that as the head of the pension fund – and not as a real estate market expert.

Head: Yes, I deal with bonds from large German industrial companies. A year ago, at the beginning of 2022, they issued bonds on the capital market with a yield of just 0.5 percent. The same companies with the same creditworthiness, with the same business model, with the same profits have bonds on the market today that yield over 4 percent. So it really pays off to invest capital again – not only in real estate, but also in bonds and shares.

The questions were asked by Anne-Catherine Beck, ARD finance editor. The interview was shortened and edited for the written version.