Introduction: The fear of inflation remains subconscious in German society, as there were two large inflations with a total (1923) and a very strong (1948) inflation in the previous century. Thus, especially older people choose gold and real estate as an alternative form of saving in addition to savings accounts.
With the federal bank (Bundesbank), a stable monetary policy could establish in Germany and the D-Mark became one of the strongest and most stable currencies in the world for decades.
The lax monetary policy of the European Central Bank could so far not change the mind of German people about their favourite investment product, the savings account (Sparkonto).
On this page, you will find all important details about savings accounts in Germany
3 different types of savings accounts
Savings accounts can be divided roughly into three different types:
- Bank book (Sparbuch) (modern: Savings card (Sparcard))
- Call money account (Tagesgeldkonto)
- Fixed deposit account (Festgeldkonto) (sometimes called time deposit (Termingeld))
Each savings account is presented in detail and their advantages and disadvantages are discussed.
1. Bank book
DThe bank book savings account is the historically oldest in Germany. Previously, the conditions were even controlled by law. This law has been repealed long ago, but some parts of it have been committed to date by banks in their bank conditions.
- No minimum investment amount (Mindestanlagesumme) (amounts of Euros 0.01 up to several million Euros can be deposited)
- The balance bears interest (the interest rate (Zinssatz) differs from bank to bank, but is quite low)
- The period of notice (Kündigungsfrist) is 3 months; Euros 2,000 can be withdrawn each month without cancelling the bank book.
- Free account management (Kontoführung)
Almost every bank opens savings accounts for German as well as for foreign customers.
Savings Card (Sparcard) – the modern form of the bank book
As the bank book was not as interesting after the introduction of the call money accounts (next introduction) at the end of the 1990s, and many consumers switched from the bank book of a local bank to a call money account of an Internet bank with higher interest rates, some banks continued to develop the bank book into a savings card (Sparcard).
Instead of a small booklet, as it was common in the bank book, one now has a savings card in bank card format. With this card, one can withdraw cash at the ATM, but cannot pay directly in stores.
Some banks even offer abroad cash withdrawals free of charge.
Advantages and disadvantages of bank books / savings cards
2. Call Money Account
The call money account is a further development of the bank book. Call money accounts are managed primarily online. There is neither a booklet nor card for this account.
The depositing is made via bank transfer (Überweisung) from a current account (most banks do not care who the owner of the money-sending current account is). Refunds are only performed to the current account of the holder of the call money account that was consigned at the call money bank. This current account is called the reference account (Referenzkonto).
General conditions of call money accounts
- No minimum investment amount (amounts from Euros 0.01 up to several million Euros can be deposited)
- Balance usually bear more interest than at the bank book
- No period of notice (you can transfer your money any day in the full amount to your reference account)
- Free account management
Not every bank in Germany offers call money accounts. Call money accounts are primarily found at online banks, with the differences in the applied interest rate and the frequency of interest credits (daily, monthly, quarterly or annually).
One can find quite a lot of foreign banks in Germany that offer call money accounts, often with higher interest rates than German banks. These foreign banks came to Germany to gather savings deposits (customer deposits). Germany is a nation of savers!
Advantages and disadvantages of call money accounts
3. Fixed Deposit Account
The fixed deposit account differs from the savings account in the availability and the minimum investment amount. In the fixed deposit account, one concludes a contract with the bank, which specifies how long the money stays in the bank and the interest rate you get. That is why banks often call it time deposit.
For example, one concludes a fixed deposit contract with the bank in the amount of Euros 5,000 with a term (Laufzeit) (= duration of the investment) of 2 years and receives an annual interest payment of Euros 100. That would be an interest rate of two percent.
Terms from one month until ten years are possible in Germany. However, most contracts are concluded from one to five years. During the term, one cannot access the money. In return, the interest rate is usually higher than at the call money account, because you waive on the daily availability.
It especially makes sense to set up a fixed deposit account, when one fears a future lower interest rate level and does not need the money temporarily. The agreed interest rate upon contract conclusion stays the same at the fixed deposit account. At the call money account, the interest rate changes depending on the market conditions.
Pay attention to the expiration date of the fixed deposit account
Some banks set the fixed deposit account – in the above mentioned example, after two years – automatically again to two years after the contract expiration, if you do not cancel.
This is done at the currently applicable interest rate. This can be better or worse than today. Other banks transfer the money back or “park” it in a daily available call money account.
At best, you write down the expiration date of a fixed deposit account in a long-term calendar and ask your bank on what happens afterwards.
If the bank conditions intend an automatic reinvestment (Wiederanlage), then write one day after the account opening a notice of cancellation (Kündigung) for the expiration date. This way, the bank can not invest again!
Advantages and disadvantage of a fixed deposit / term deposit account
Frequently asked questions about savings accounts
a) Safety of savings accounts
The money in savings accounts is a completely secure investment. By law, the accounts are secured with Euros 100,000 per account and per person (= Euros 200,000 at a joint account (Gemeinschaftskonto) with two account holders). This is the minimum security amount that the European Union has established.
The account balance is more secure in Germany than in most other EU-countries
Additionally, most German banks have joined private or public deposit insurers. This way, account balances are secured up to millions (private sector, e.g. Comdirect Bank) or up to an unlimited amount (public sector, e.g. DKB).
Even if the Euro zone should break apart, the money would still be in good hands with a German bank, because one can assume that because of the economic strength, Germany will have a stronger new currency than countries in southern Europe.
The only thing saving accounts are not protected of, is inflation.
b) Taxation of savings accounts
In Germany, interest income earned on savings accounts is subject to taxation (not the account balance, only the interest!).
The tax is called “settlement tax” (Abgeltungssteuer) and is composed of 25% standard income tax (Einkommenssteuer) plus 1.375 % solidarity tax contribution (Solidaritätszuschlag) (because of the German Unity of 1990) and members of the Catholic or Protestant church depending on the federal state respectively 1.9608 % or 2.1996 %. Altogether, this is 26.4 to 28.5 % taxes.
That means that of Euros 100 interest without church membership, about Euros 26.40 are paid to the state and you keep Euros 73.60.
Tax exemption (Steuerfreibetrag)
The German tax law is supposed to be the most extensive of the whole world … therefore, also tax exemptions for interest exist. The main exception is called “tax exemption”.
Any person can use this tax exemption. It is currently (as of 2015) at Euros 801. This means: the first Euros 801 of interest is tax free.
In order to use this tax exemption, one must consign an “exemption order” (Freistellungsauftrag) at the bank. For details on this, please contact your bank.
Once everything is set up correctly, the tax for the customer is very simple, because the bank calculates everything. As a customer, you receive all interest up to Euros 801 (or at several banks up to the amount that you have consigned in the exemption order) tax-exempt credited to your account.
If your interest is more, then the bank transfers the tax for you directly to the tax office (Finanzamt). You do not have to worry about it.
In both cases at the beginning of each year, you will receive a tax certificate (Steuerbescheinigung) from your bank from the past year, in which all the required information is stated. This is included as an attachment to the annual income tax return (Einkommenssteuererklärung).
Non-resident tax payers in Germany
If you are not subject to tax in German, because you are taxable in another country, then all interest income is tax free. For this, your status as a non-resident taxpayer (Steuerausländer) must be consigned at the bank; otherwise the tax will be deducted automatically.
Here you can find more Details about non-resident taxpayers in German language.
c) Foreign directs banks in Germany
Foreign direct banks often offer higher interest rates than German banks, as they have come to Germany to gather money. The classic aspect of these banks is that they only offer savings accounts, but no other banking services.
The deposit insurance is often in another EU-country.
As one focuses on winning customers in Germany, these banks do usually not accept customers residing abroad. In part, the problem is that the software of the bank can not make a distinction between resident taxpayers and non-resident taxpayers.
d) Savings accounts for companies
Of course, savings accounts can also be opened in the name of a company. Unfortunately, the offer and the interest rate are not as good as for private persons. Additionally, in Germany there are pure retail banks that do not open company accounts.
Moreover, it is a pity that the banks of companies usually want to see a German address and, if applicable, a registration in the commercial register.
However, I will be happy to investigate other banks, at the request of abroad companies that want to invest money in Germany.
Account opening in Germany
Opening a savings account in Germany is relatively easy, as you provide money for the bank and not vice versa. Thus, no creditworthiness check of the customer applies.
You simply visit the branch office of a bank with your ID card or passport and open a savings account. If you value a good – or the best – interest rate, I recommend you to compare the interest rates in advance.
All accounts of the two comparisons can be applied for online, if you have an address in Germany.
It could be a strategy to first open a savings account at a good bank and later open a current account too, in order to obtain a better rating in the creditworthiness check. I describe this strategy in detail in this article.
Opening a savings account in Germany is easy. It can take place in a branch office or online. A legal requirement is the identification of the person.
Savings accounts differ substantially in the term of the investment:
- with a 3 months’ notice from Euros 2,000 (bank book, savings card)
- daily availability (call money)
- availability at the end of the agreed term (fixed deposit)
The interest income from savings accounts is taxed generally. Exception: tax exemption or non-resident taxpayers.
It is a good idea to have a savings account in Germany!