Savings Accounts in Germany
- TF Bank Tagesgeldkonto (3.8%) – Best savings account in Germany. Highest interest rate, compound interest from monthly payments and banking app in English.
- Consorsbank Tagesgeldkonto (3.5%) – Also a great savings account. Extension possible to 12 months. Everything in German.
- Commerzbank Tagesgeldkonto (3.25%) – Savings account at the best branch bank. Banking app and customer service in English.
- N26 Instant Savings (1.26-2.6%) – Savings account at the best bank for beginners in Germany. Everything in English.
- DKB Tagesgeldkonto (1.75%) – Savings account at the best bank for permanent residents. Banking app in English.
Most banks will offer their websites only in German. Translate the pages using the Chrome browser’s built-in feature (Right-click → Translate to English). If a button or link is unresponsive, switch back to the German version and retry.
Flexible Savings Account (Tagesgeldkonto)
The flexible savings account is one of the most widespread financial products among Germans due to its simplicity. The major benefit of a call money account is its flexibility. Money deposited in such an account can be withdrawn anytime, and deposits can be made without any complications. The purpose behind this account is that the investor doesn’t make any long-term commitments but can still access their funds whenever they wish and earn a good interest rate on their balance.
Funds are stored in a separate savings account. Unlike a checking account, it cannot be utilized for regular payments. Therefore, a reference account is essential to transfer money and withdraw money. When opening this account, there’s no strict requirement to open a new bank account. An existing one can generally serve as the reference account. Moreover, there are no fees associated with managing and administering this account.
Interest on Flexible Savings Accounts
The interest paid on balances in a call money account is usually higher than what’s offered on a regular bank account. Banks providing a call money account tend to offer better interest rates since these accounts are typically operated through online banking, reducing administrative expenses. Such cost savings are then passed on to the customer through favorable interest rates.
Although interest rates are influenced by the benchmark rate of the European Central Bank, many banks give an interest rate that’s notably higher. This is often due to the intense competition among banks wanting to attract new customers with enticing offers. However, it’s crucial to see the duration of these offers and evaluate if they remain advantageous after any introductory periods.
The frequency of interest payments varies from one provider to another, with periods ranging from monthly to annually. Shorter intervals can be more beneficial due to the compounding interest effect.
While some bank’s interest offers might be alluring, it’s essential to remember that flexible saving accounts have a variable interest rate that can be altered daily. Hence, they don’t provide a guaranteed fixed interest rate like fixed-term saving accounts.
Pros and Cons of Flexible Savings Accounts
- Earn interest on your balances.
- Access money at any time.
- No long-term commitments.
- Typically, no account fees.
- Stable value, no losses due to market changes.
- Deposit insurance covering up to €100,000.
- Variable interest rates.
- Daily changes in interest rates.
- The account can’t be used for regular payments.
- A reference account is necessary.
- Relatively lower returns compared to some other investment methods.
Who Should Consider a Flexible Savings Account?
Given its inherent flexibility, a call money account suits those wanting easy access to their funds on short notice. It’s also a good choice for those with an amount they might need soon but aren’t certain when. If someone is exploring long-term investment options, an easy access savings account can be a convenient place to “park” funds in the meanwhile.
Fixed-term Savings Account (Festgeldkonto)
Fixed-term savings accounts, also known as fixed deposit accounts, are another popular investment option in Germany. These accounts offer security for the invested capital and typically provide better interest rates than flexible savings accounts.
With a fixed deposit account, your money is locked in for a specified period. During this time, you can’t access the funds without incurring penalties, which often includes losing the interest earned up to that point. The conditions for breaking a fixed-term deposit account vary among providers.
Terms of a Fixed Deposit
The duration of a fixed deposit can range anywhere from 30 days to 10 years. Ideally, a higher return can be earned when a substantial amount is invested for a longer period. Most banks require a minimum deposit, typically starting at €5,000.
Upon term completion, investors can decide the fate of their funds. They can either reinvest, benefiting from the compound interest effect, or transfer the capital to a reference account for easier access.
Interest Rate Considerations
The interest on fixed deposits largely depends on the prevailing market interest rate. Both the sum and the term of the deposit play roles in determining the interest rate. One advantage is that this interest rate remains constant throughout the investment period, ensuring protection against any interest rate downtrends. However, this fixed interest rate can also be a downside if market interest rates rise, as depositors won’t benefit from the uptick.
Interest Rate Ladder Strategy
One strategy to circumvent the inflexibility of fixed deposits is the “interest staircase” approach. Here, the principal is split into multiple parts (like three equal amounts), and each portion is locked into staggered durations (e.g., 1–3 years). As a result, a part of the investment matures annually. If there’s no immediate need for the funds upon maturity, the amount can be reinvested into another three-year term, continuing the cycle.
This method offers enhanced flexibility, as funds become available at least annually. It also accounts for potentially rising interest rates since the interest adjusts with every new term. Conversely, if market rates decline, the impact is inevitable.
Pros and Cons of Fixed-term Savings Accounts
- Guaranteed interest rate throughout the investment period.
- Competitive returns due to higher interest rates.
- No account management fees.
- Varied term lengths to choose from.
- The interest rate remains static even if the market rates increase.
- Money is locked in; premature withdrawal may lead to interest loss.
Who is the Fixed Deposit Account ideal for?
A fixed deposit account is best for those who prioritize safety, anticipate no short-term need for the funds, and appreciate the predictability of a set return. For individuals considering substantial investments, diversifying the amount across various fixed-term accounts or other financial instruments can optimize returns.
In essence, a fixed deposit account is a middle-ground investment—offering better interest rates than money market accounts while being less risky than broker accounts.
Protection of Deposits in Germany and the EU
Funds in a savings account in Germany are protected by the statutory deposit guarantee scheme, making it a highly secure investment.
As of 2011, statutory deposit insurance applies across the European Union. This ensures that, even in the event of a bank’s insolvency, the savings account balance for each customer is protected up to €100,000. This EU-wide rule means consumers can confidently open a savings account with any European bank.
Taxation on Interest Payments
In Germany, the interest generated income from saving accounts is subject to the Withholding Tax. Essentially, this means that 25% of the interest payments you receive will be taxed. However, there’s an exemption in place: if your interest income for the year is less than €1000 (or €2,000 for married couples), you won’t need to pay any Withholding Tax on that amount. Only the income that exceeds this threshold is taxable.
When you have a savings account with a German bank, the bank handles the deduction of this tax automatically. If you’d like the bank to consider your tax allowance automatically, you can provide them with a tax exemption order, known in German as “Freistellungsauftrag”.
Best Savings Accounts in Germany
TF Bank Savings Account
The TF Bank Flexible Savings Account is the best savings account in Germany. With its primary operations in Sweden, TF Bank also offers its services in Germany and has established itself as one of the highest interest paying banks. Notably, this bank functions purely online.
For the first 3 months, new customers are greeted with a promising 3.80% interest rate. An advantage is the interest paid every month, which means the money grows faster because of compounded interest. After this period, the interest rate becomes 1.45%, ensuring a continued growth of the savings.
Another benefit is the absence of account maintenance fees. So, the money in the account grows without any deductions. When it comes to safety, there’s no need for concern. The Swedish state deposit insurance ensures that deposits are protected up to SEK 1,050,000 (approximately €90,000).
However, some points might require careful consideration. There’s a deposit limit of €100,000. And while the online bank model is efficient, there are no physical branches in Germany, which can be an issue for some people. Potential language challenges can arise as the bank’s website and customer service are not in English. An essential point to note is about the interest-generated income. The bank doesn’t deduct taxes for this directly because it doesn’t have a branch in Germany. So, it’s up to the account holders to declare this in their tax forms in Germany.
How to open a Savings Account in Germany
Opening a savings account in Germany involves some specific procedures and requirements. Let’s break it down:
Requirements
- A valid identification document (passport or national ID).
- Proof of address in Germany (this can be your rental contract or a utility bill).
- A German checking account, to use as a reference account.
Online vs. in-person Account Opening
- Online: Most modern German banks offer an online application process. This can be more convenient, but be prepared to upload your documents in the prescribed format.
- In-Person: Traditional banks usually require you to come in for a face-to-face meeting. This can be more time-consuming, but it will offer a more personalized service.
Verifying your identity
Opening a savings account online requires identity verification if you’re new to the bank. Two primary methods are:
- PostIdent: Visit a post office where an employee will check your ID card or passport.
- VideoIdent: Display your ID card or passport to a webcam or smartphone camera for verification.
Conclusion
Having a savings account in Germany is a secure way to grow your money. Whether you want a fixed deposit account or a flexible savings account, understanding the options helps you make an informed decision. Always remember to consider the interest rate and any account fees associated with the account you choose.
Frequently Asked Questions
A savings account is a type of bank account where individuals can deposit money to earn interest. In essence, a savings account allows individuals to grow their money over time by accumulating interest.
Yes, many German banks offer the option to open a savings account online but will require identity verification, which could be done either through a video call (VideoIdent) or by visiting a post office (PostIdent).
German savings accounts are covered by the deposit guarantee scheme up to €100,000, so your money is safe up to that limit.
The required documents can vary by bank but generally include your passport, proof of address in Germany, and a German bank account.
Some banks offer multi-currency accounts, but these usually come with additional fees and lower interest rates.
You can transfer money from your bank account to your savings account using online banking or by making a transfer at a branch. International transfers can be made using services like Wise to save on fees.
