Avoid negative interest rates: There is this safe option

It is not easy for savers: When interest is currently being discussed at the bank, it is usually with unsightly prefixes such as minus, penalty or negative. According to the financial portal Biallo, around 500 banks and savings banks in this country are now charging negative interest rates on private assets, often referred to as custody fees.

More and more bank customers not only have to forego interest on their checking accounts, but should also pay for the fact that they have money there – for example a negative interest rate of 0.5 percent per year. The penalty interest applies more and more not only to new customers, but also to existing customers. In addition, the tax exemption limits are melting away, in some cases the custody fee is charged from the first euro.

Stocks offer returns – but they are not risk-free

Shares are seen as an antidote to dwindling savings: Those who want to increase their money can hardly avoid the capital market today. Consumer advocates usually recommend a savings plan on equity ETFs for long-term asset accumulation. These are broadly diversified passive funds that track the performance of an index such as the MSCI World at low cost. In the long term, you can expect a decent return of seven to eight percent per year.

The thing with stocks has only one catch: Even the most conservative securities savings plan can slip into the red for a short time if the capital markets as a whole smear. With an investment horizon of ten years or more, this is not a problem because you can simply wait for the next recovery. But what if I need the money in a year, two or four years? So what if I neither put it in stocks now, nor do I want to watch how the account runs out in the meantime?

Fixed deposit brings more than 1 percent

In this case, a savings classic that is easily forgotten in the general stock and real estate hype becomes interesting again: the good old fixed-term deposit. Because the statement that there is no more interest on the account today is not entirely true. This may apply to checking accounts and overnight money. However, if you park a certain amount on the fixed-term deposit account for a fixed period of time, you will receive at least a little something.

One of the most attractive offers is currently the fixed-term deposit from the Swedish payment provider Klarna, which has once again improved its conditions this week. If you open a fixed deposit account with Klarna and invest your money for 24 months, you will receive 1.04 percent interest per year. With a 12-month term it is 0.73 percent and with 48 months 1.21 percent per year. Anyone who puts 10,000 euros in the fixed-term deposit account will have 484 euros in interest income in their pocket after four years – with no compound interest effect. That is not a great return. But there is practically no risk up to a certain investment amount: Even in the event of Klarna going bankrupt, Sweden’s statutory deposit insurance would reimburse the equivalent of up to 100,000 euros per saver.

According to the Biallo comparison, there is even slightly more interest over a year or two at the Italian FCA bank. It pays 0.85 percent interest on the fixed-term deposit for 12 months and 1.05 percent interest for 24 months. However, the Italian deposit insurance has a slightly weaker security rating than the Swedish one, which is on a par with the German one. The Lithuanian provider Payray also offers a similar amount of fixed-term interest rates as Klarna, according to the fixed-term deposit comparison by FMH Finanzberatung. If you only trust the German deposit insurance, you can currently get the highest fixed-term deposit rates from Isbank – the German subsidiary of the Turkish institute of the same name. However, these are well below 1 percent.

One thing is clear: Generally speaking, you won’t get rich with the current fixed-term deposit offers. But savers at least have more money in their account at the end of the term than if they were to pay negative interest. In conclusion: Before you transfer all your money to Sweden for two years, make sure to keep a little updated on a daily basis. After all, a car or washing machine can always break down. In order to be liquid in the short term, it is advisable to have at least two to three monthly salaries as a buffer on the current or overnight account – ideally, of course, with a provider without a custody fee.

Current fixed-term deposit offers (interest per year)

Sources: Biallo, FMH and providers; Status: 23.9.2021

You can compare current offers on portals such as Biallo or FMH.