Munich Fixed deposits are one of the most solid forms of investment, but also one of the most boring. Not without reason: in recent years there has been little or no interest on fixed deposits.
However, many banks are now offering better conditions for fixed-term deposits thanks to rising key interest rates. According to FMH-Finanzberatung, the average interest rate for offers with a one-year fixed interest rate rose from 0.20 to 2.25 percent between June 2022 and June 2023.
Not surprisingly, then, that time deposits are one of the most popular investment products among Germans. According to the Bundesbank, around one trillion euros were “fixed” in mid-2023. For whom is a fixed deposit account worthwhile? What should savers consider? How safe is the money? And where are the highest interest rates? The Handelsblatt answers the most important questions about fixed-term deposits.
What is a fixed deposit account?
In banker jargon, a fixed-term deposit is part of what is known as a fixed-term deposit. These are deposits that customers entrust to a bank for a certain period of time. This can be periods of between one month and ten years. For comparison: the overnight money, which is also popular, is available daily.
While the money is locked in, savers cannot access their money. The bank pays fixed interest rates for this. They are also due when interest on savings falls towards zero again. If a bank grants four percent interest for three years, it assumes that it will be able to invest the money more profitably elsewhere in the next three years.
Who is currently offering good fixed-term deposit interest rates?
These banks currently offer the highest interest rates on fixed deposits (as of July 5th, 2023):
- Twelve months: sme Bank from Lithuania with 4.15 percent (via weltsparen.de) and Klarna with 4.11 percent
- Three years: Haitong Bank from Portugal with 4.25 percent (via weltsparen.de) and J&T Direct Bank from the Czech Republic with 3.8 percent
- Five years: abc bank with four percent
Fixed-term deposit interest: Where can offers be compared?
In our detailed fixed-term deposit comparison, you can find out which other interest rate offers are particularly attractive. Experts also explain when fixed-term deposits are currently recommended.
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Our fixed-term deposit comparison is based on data from FMH financial advice.
What should you look out for when comparing fixed deposits?
In the case of the products themselves, in addition to the interest, it is also important how the interest is paid. There are banks, such as the Haitong Bank from Portugal, which transfer the interest on their three-year fixed deposit once at the end of the term, instead of crediting the interest at the end of each year. Without the compound interest effect, the money invested at Haitong only earns around 4.1 percent instead of 4.25 percent. This effect can be all the stronger the longer money is frozen.
In addition, some banks only grant interest above a certain investment amount. For example, you pay lower interest for amounts over 50,000 or 100,000 euros. Again and again there are combinations in which about half of the investment sum flows into a high-interest time deposit and the rest into fund shares.
Anyone who concludes such an offer should know that the interest only applies to the fixed deposit portion, the funds are subject to market fluctuations. They can bring high returns, but they don’t have to. “Often enough, however, these are funds that have done poorly in the past and are not selling well,” warns Niels Nauhauser from the Baden-Württemberg consumer advice center.
For whom is fixed deposit useful?
“There are many people for whom fixed deposits are an important component of their assets,” says Horst Biallo. The founder of biallo.de, a consumer portal all about saving, reports on mostly older people who do not want to expose their assets to fluctuations on the stock market and who distribute their capital to fixed-term deposit accounts with different maturities.
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But even those who save towards a goal can use fixed-term deposits to secure the profits made with shares, funds and ETFs. Because of the currently high inflation, however, fixed-term deposit accounts, like call money accounts, are more suitable for limiting losses.
How secure is fixed deposit?
Across Europe, 100,000 euros are secured per customer and bank via the respective state deposit insurance. If a bank goes bankrupt, the money has to be repaid within a few days, including the interest accrued up to that point. This also applies to savings in fixed deposit accounts.
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Many German banks have also joined the Bankers Association’s voluntary deposit protection fund. Amounts over 100,000 euros are also secured via it. Savings banks and Volksbanks protect all of their customers’ deposits. Savings banks and Volksbanks in crisis are supported by the other members of the association via the so-called institute safeguard until they are economically healthy again.
How much money should you have in a fixed deposit account?
Most fixed deposit accounts have a maximum investment limit. Beyond this amount, the interest rate usually drops rapidly. Anyone who is particularly concerned about security should distribute larger assets in 100,000 euro packages to different accounts anyway,” advises Max Herbst from FMH-Finanzberatung. This not only spreads the risk, but also always provides full statutory deposit protection.
How do you open a fixed deposit account?
Fortunately, the days when you had to go to the post office to open an account are over. Many banks now advertise that customers can open new accounts within minutes. Thanks to the video identification process, this is actually possible from the sofa at home with a smartphone or laptop.
As with all banking, the person opening the account must be of legal age. Fixed deposit accounts for children must be opened by parents or other legal guardians.
What happens if you withdraw your money before the end of the term?
As a rule, banks reward loyalty with fixed-term deposits, i.e. a long fixed interest rate with high interest rates. This need not be. “If the interest rates at the so-called long end, i.e. eight or ten-year fixed deposits, are lower than three-year offers, this is a sign that banks assume that they will have to pay lower interest rates in the future,” says Max Herbst from the FMH financial advice.
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However, the fixed interest rate also has a downside: the bank can withhold interest from savers who withdraw their money before the end of the fixed interest rate period. A few institutes such as IKB or Pbb Direkt offer their customers the option of withdrawing half or a fifth of the invested money beforehand and continuing to receive interest on the rest. This is not possible with classic fixed-term deposit accounts.
Are interest rate brokers worth it?
Weltsparen and Zinspilot offer their customers access to umpteen different time deposit accounts from all over Europe. The offers sometimes have higher interest rates than those of banks where customers can open an account directly. The portals have many banks to choose from, but by no means the broad market.
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