A fixed deposit account is called a “piggy bank”. But it’s not just interest rates that vary widely.
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munich Time deposits are one of the most reliable forms of investing, but also one of the most boring. Not without reason: In recent years, term deposits have paid little or no interest.
However, many banks are now offering better terms on term deposits due to the rise in key interest rates. According to FMH-Finanzberatung, the average rate for one-year fixed rate offers rose from 0.20% to 2.25% between June 2022 and June 2023.
It is therefore no surprise that fixed deposits are one of the most popular investment products among Germans. According to the Bundesbank, around 1 trillion euros are “fixed” by mid-2023. For whom is a fixed deposit account worth it? What should savers consider? How safe is the money? Where are the highest interest rates? Handelsblatt answers the most important questions about time deposits.
What is a Fixed Deposit Account?
In bankers’ jargon, a term deposit is part of what is called a term deposit. These are deposits entrusted to the bank by customers for a certain period of time. This can be a period between one month and ten years. In comparison: Overnight money is also popular and can be used every day.
When funds are locked, depositors cannot withdraw funds. Banks pay a fixed rate for this. They also expire when interest on savings drops to zero again. If a bank offers four percent interest over three years, it assumes it will be able to invest that money elsewhere for more profit over the next three years.
Who currently offers good fixed deposit rates?
These banks currently offer the highest fixed deposit rates (as of 5 July 2023):
- twelve months: Lithuanian SME Bank 4.15% (from weltsparen.de) and Klarna 4.11%
- three years: Haitong Bank of Portugal with 4.25% (from weltsparen.de), J&T Direct Bank of the Czech Republic with 3.8%
- 5 years: abc bank four percent
Fixed deposit interest: where to compare quotes?
You can find out which other interest rate offers are particularly attractive in our detailed term deposit comparison. Experts also explain when fixed deposits are currently recommended.
>> Read related content: Fixed deposits vs demand deposits: which offers are worth it
Our term deposit comparisons are based on data from FMH Financial Advice.
What should I look out for when comparing term deposits?
As far as the product itself is concerned, in addition to the interest, how the interest is paid is also very important. Some banks, such as Haitong Bank in Portugal, transfer the interest of the three-year fixed deposit at the end of the period instead of crediting the interest at the end of each year. If there is no compound interest effect, the money invested in Haitong can only get about 4.1% return instead of 4.25%. The longer the funds are frozen, the stronger this effect is.
Also, some banks only give interest above a certain investment amount. For example, you pay lower interest on amounts over EUR 50,000 or EUR 100,000. Time and time again, this combination appears: About half of the investment amount goes into high-interest time deposits, and the rest goes into fund shares.
Anyone making such an offer should be aware that interest is only applied on the term deposit portion and funds are subject to market fluctuations. They can deliver high returns, but they don’t have to be. Niels Nauhauser of the Consumer Advisory Center in Baden-Württemberg warned: “However, these funds have generally underperformed in the past and have not sold well.”
Who is Fixed Deposit useful for?
“For many people, term deposits are an important part of their assets,” Horst-Bialo said. The founder of biallo.de, a savings-themed consumer portal, reports that most seniors do not want their assets to be exposed to stock market volatility and allocate funds into fixed deposit accounts with different maturities.
>> READ ALSO: Calling money and inflation: Here’s what you should be aware of
But even those who save with a goal can use term deposits to secure profits earned on stocks, funds, and ETFs. However, due to the current high inflation, a fixed deposit account (such as a checking account) is better suited to limit losses.
How safe is a fixed deposit?
Across Europe, each customer and bank is insured up to EUR 100,000 by their respective national deposit insurance. If the bank fails, the money must be repaid within a few days, including accrued interest up to that point in time. This also applies to savings in fixed deposit accounts.
>> Read related content: Deposit Insurance: Your Funds Are So Safe Now
Many German banks also participate in the Bankers Association’s voluntary deposit protection fund. Amounts over EUR 100,000 can also be secured through it. Savings banks and PBOC protect the deposits of all their customers. Troubled savings banks and PBOC are supported by the rest of the association through so-called institutional safeguards until their economies are healthy again.
How much should you have in your fixed deposit account?
Most fixed deposit accounts have a maximum investment limit. Above this amount, interest rates typically drop rapidly. In any case, anyone who is particularly concerned about security should allocate larger assets in the form of 100,000 euros to different accounts,” advises Max Herbst of FMH-Finanzberatung. This not only spreads the risk, but also always provides sufficient fiat deposits Protect.
How to open a time deposit account?
Fortunately, the days of having to go to the post office to open an account are over. Many banks now advertise that customers can open new accounts in minutes. Thanks to the video recognition process, this can actually be done from the couch at home using a smartphone or laptop.
As with all banking, a person must be of legal age to open an account. Children’s time deposit accounts must be opened by parents or other legal guardians.
What happens if you withdraw funds before the end of term?
Typically, banks reward loyalty with term deposits (i.e. high-interest, long-term fixed rates). It doesn’t have to be. “If the interest rate on so-called long-term deposits, eight-year or ten-year term deposits, is lower than the rate on three-year deposits, it is a sign that banks think they will have to pay lower rates in the future,” said Max R. Herbst (Max Herbst) said.
>> Read related content: Flexgeld: as flexible as a checking deposit, as secure as a time deposit
However, fixed rates also have a downside: Banks can withhold interest on depositors who withdraw funds before the fixed rate period ends. Some institutions, such as IKB or Pbb Direkt, offer clients the option of withdrawing half or a fifth of their investment funds early and continuing to charge interest on the remaining funds. This is not possible with traditional time deposit accounts.
Are Rate Brokers Worth It?
Weltsparen and Zinspilot offer clients access to a number of different time deposit accounts from across Europe. These offers are sometimes higher than the interest rates offered by banks where customers can open accounts directly. The portal has a lot of banks to choose from, but it’s by no means a vast market.
more: Savings Comparison: Here You Can Find The Highest Savings Rates