The interest rate turnaround two years ago gave savers more attractive interest rates. But interest rates on fixed-term deposits are already falling again because the ECB could soon lower the key interest rate.
The interest rate peak for savings interest seems to have already been passed again. There has been less interest on savings for a few months now. However, with a fixed-term deposit you can still earn interest rates that are well above the inflation rate.
Real returns are still possible
Inflation in Germany was 2.5 percent in February, the lowest value since 2021, as the Federal Statistical Office announced at the beginning of the week. Since it is likely to remain at a moderate level in the coming months, savers can continue to achieve a real return with overnight money, but especially with fixed-term deposits, “in real terms” – i.e. after deducting inflation.
“German banks currently pay up to 3.8 percent interest on two-year fixed-term deposits. If you compare that with what typical house banks such as savings banks or Volksbanks pay on average, which is 2.2 to 2.3 percent, then that’s okay “An investment sum of 10,000 euros still has a 300 euro difference in interest rates,” says Ralph Wefer from the comparison portal Verivox, explaining the current interest rate environment and why comparisons in the fixed-term deposit market are worthwhile.
Fixed interest rates are advantageous
With fixed-term deposits, also known as time deposits, money is invested for a period of time agreed with a bank. In return, the saver is guaranteed a previously agreed interest rate, which is paid out together with the deposit at the end of the term.
The lack of flexibility with fixed-term deposits is a strength of the savings form in the current situation. The possibility of fixing an interest rate that is currently quite high makes sense especially if you take into account any key interest rate cuts by the European Central Bank (ECB) in the coming months. A first key interest rate cut could take place in June, after which experts expect further interest rate cuts. Since savings interest rates are always linked to the key interest rate level, the returns for interest savers will probably soon be worse.
With longer terms, the interest rates fall more
In the market for fixed deposit interest rates, the banks have already reacted to the changed expectations, says Niels Nauhauser from the Baden-Württemberg consumer center: “The ECB interest rates have not yet fallen, unlike the capital market interest rates, because the capital market participants expect the ECB to Interest rates will come down soon.” The banks’ expectations are also reflected in the fact that less interest is currently being paid for longer terms such as two or five years than for one-year fixed-term deposits (see graphic).
Using comparison portals on the Internet, savers can find one or more banks where they want to park their funds for a limited period of time – and which still offer an attractive interest rate. The usual term for fixed-term deposits is between three months and up to five years. Account management for fixed-term deposit accounts is usually free of charge.
Interest rate scale as a method
Before investing in a fixed-term deposit, you should take stock of your own financial resources and savings horizon. How much money can I safely spare for a period of one or more years? “Savers who invest their money as a fixed-term deposit must be aware that they will not be able to access their financial reserves for the duration of the term. So if you know for sure that you won’t need your money for several years, you can do so with sufficiently strong deposit protection “To invest your money for the long term,” explains Wefer.
In the current interest rate situation, the Verivox expert recommends that savers use an “interest rate scale” in which two fixed-term deposits, each with a two-year term, are taken out one year apart: “This means that one of the two investments comes back every year and the money is available again. “
Deposit insurance up to 100,000 euros
Not only is the highest possible savings interest rate important for fixed-term deposit savers, but also the security of the specified amounts. The so-called “deposit protection” is intended to guarantee the repayment of savings deposits even in the event of a crisis. “There is deposit insurance in all EU member states, but national solutions in each case,” explains consumer advocate Nauhauser: “In Germany there is a statutory deposit insurance that protects 100,000 euros per customer or account holder. For married people, the amount is double. In addition, there are There are still voluntary security systems, but you have no legal right to them.”
So if you want to set larger amounts, you should generally not exceed the limit of 100,000 euros for fixed-term deposit accounts, but rather open several accounts. And he should also pay attention to where his savings lie over several months or years. Although some foreign banks also offer the highest fixed-term deposit interest rates for German savers, the same applies to the fixed-term deposit market: more returns also mean a little more risk.
For this reason, the Baden-Württemberg consumer advice center, for example, expressly recommends making fixed-term deposits with German banks. As a financially stable country with a high credit rating, the German state is also in a position to step in financially in the event of a major bank failure in order to guarantee the banks’ deposit protection.
Pay attention to withholding tax, use flat rate
If you still want to park a fixed-term deposit in other EU countries and rely on their deposit protection, you should note that in some countries a withholding tax is levied on the interest paid out. Savers can get part of this tax back through a “certificate of residence” from the tax office. However, it only applies in countries with which Germany has concluded a double taxation agreement (DTA).
In order to keep the capital gains taxes that arise on interest income at German banks as low as possible, you should set up an exemption order. The savings allowance that you can use is 1,000 euros per year or 2,000 euros for married people. Capital gains are tax-free up to this amount. The flat rate amount can be distributed across several banks and adjusted at any time.
For fixed-term deposits with a term of several years, this allowance can be better used if the interest payments are made annually. If, on the other hand, the interest is paid out in one fell swoop at the end of the term, then the tax leeway in the year of payment is exceeded more easily.