Maximizing Returns: Tips for Investing in a Changing Interest Rate Environment

The ECB’s key interest rate is now 4.5 percent. While bank interest rates for loans have already climbed, they are significantly lower for savers. Questions and answers:

If the ECB increases the key interest rate, that does not automatically mean that the interest on savings accounts will also rise. Banks use the key interest rate as a guide, but they are not obliged to pass on the changes to their customers.

Normally, the interest rates on savings deposits are always slightly lower than the interest that banks receive on the money they themselves invest with the ECB. The banks pocket the difference as profit.

However, if you have to borrow money, it will be more expensive because the increased interest rates will be passed on more quickly. The interest rates on loans for customers are always slightly higher than the rate that banks have to pay for their loans from the ECB. The reason here too: This is how banks make their money.

The highest interest rates are available for investments that last for a longer period of time, for example fixed-term deposits. This is called a fixed-term deposit because you can only use it again after a period of time has elapsed. For example, anyone who invests 10,000 euros for a year can currently receive interest of up to 4.3 percent. That’s at least 430 euros. However, some savings banks only offer just under 2 percent – for the same term.

When it comes to daily money, which is available every day, the differences are even more stark: Some savings banks actually offer no interest at all, i.e. 0 percent. Online banks, on the other hand, already offer 4 percent to new customers.

It is important not to just look at the offers from your own bank. There are often significantly better offers via an online bank and an app. A comparison like the one on this page helps here finanztip.de offers.

The banks’ arguments are often that they protected customers from negative interest rates with high allowances during the phase of very low interest rates. There are also many long-term loans from that time. The banks and savings banks don’t earn that much from this.

But it is also true that banks and savings banks have continued to cut back on services, closed branches and restricted opening hours. They have also increased account management fees, some significantly, with new account models. They are now making higher profits because they have become leaner during the crisis and also because they have laid off employees.

Anyone who wants to invest money wants it to be invested safely and for the bank not to go bankrupt. German credit institutions protect deposits up to at least 100,000 euros through the statutory deposit protection fund. Some go beyond this limit voluntarily. This applies to daily and fixed-term deposit accounts, checking accounts and savings accounts.

Banks in the EU also offer deposit insurance, so the money is safely invested here too. Outside the EU, there are always tempting offers with significantly higher interest rates but lower security. Rule of thumb: the higher the interest rates offered, the higher the risk.

Caution is always advised when an offer sounds too good to be true. This is especially true for offers with very high interest rates or very low fees. Reputable banks are listed on the website of the Federal Financial Supervisory Authority (BaFin). Here you can easily check whether a bank is registered and licensed in Germany.

There are several alternatives to the classic savings account that may offer a higher return.

Fixed deposit: With a fixed-term deposit account, you invest a specific amount for a predetermined period of time. During this time you generally have no opportunity to dispose of your money. The longer the investment period, the higher the annual interest is often.

daily allowance: A current account is a flexible savings account that you can access at any time. Interest rates are typically variable and slightly higher than checking account interest rates.

Shares: Stocks are shares in a company that are traded on the stock exchange. The value of shares can fluctuate, so losses can also occur. But in the long term they offer a higher return than savings accounts or money market accounts.

ETFs: These are investment funds that are traded on the stock exchange and contain not just shares of one company, but those of several different companies. This means that crashes in individual stocks can be better absorbed. There are ETFs that, for example, replicate the development of a securities index, such as the DAX or other international indices.

The old rule is important here: Don’t put all your eggs in one basket. In other words: it’s the mixture that counts. Invest some of the money for the short term, some for a longer period of time and some in stocks or ETFs. For many experts, this is a good mix of reasonable returns and manageable risk.