Low interest rates: how to invest your money today?

For a few years now, with overnight money, time deposits and the like. A downward trend can be seen. Example of call money: Currently, even the top providers in the market are only offering just over 1 percent. At many banks, interest rates tend to languish in the 0.0 to 0.1 percent range.

Although there has been only slight inflation for several years, the rates of price increase are higher than the average interest rates on savings, so that the money invested in this way loses value every month. This real loss of value is in fact already a negative interest rate.

You invested 1000 euros at the beginning of the year at an interest rate of 0.5 percent. If you had spent the money instead, you would have received goods and services worth 1000 euros for it.

At the end of the year, there are 1005 euros in your account (credit + interest). If you spend the money, your 1005 euros – with an assumed inflation of 1 percent – will only have a purchasing power of just under 995 euros. So in fact, despite the interest payment, you are worse off than at the beginning of the year.

If you invest the 1000 euros for ten years at an interest rate of 0.5 percent, you will end up with a capital of just under 1051 euros with compound interest. If inflation is consistently at 1 percent during this period, your purchasing power is approx. 951 euros. The real loss thus becomes larger from year to year.

The solution to the problem, however, is not to spend one’s money as quickly as possible, but rather to spread it appropriately across different product classes.

In recent years, the possibility of deflation has also been considered in principle. Deflation means that prices are falling rather than rising. If, for example, you buy goods and services for 1000 euros today, you would only have to spend 990 euros a year later in the event of deflation of 1 percent. For individuals, deflation makes saving more attractive again. From an economic point of view, however, deflation would be highly questionable, since the prospect of further falling prices would lead to too little consumption.

Then companies can sell fewer goods and services, lay off employees due to the lower demand and a vicious circle begins. Therefore, the European Central Bank is considering what monetary policy measures can be taken to avert the danger of deflation.

Look for more favorable account offerers

Some banks now charge so-called custody fees on call money and current accounts. Many speak here also of "negative interest", "minus interest rates" or "penalty interest. Partly this applies from credit of, for example, 50.000 or 100.000 euros. Some credit institutes take from new customers in addition, already starting from the first euro credit such fees.

You can find an objective price comparison at Stiftung Warentest. By the way, banks have to help with the easy change of account to a new provider.

Wide scattering

In any case, it is advisable to invest your money in Broad diversification across different product classes and maturities. Among other things investors can achieve thereby also a protection against inflation.

In addition to overnight money, fixed-term deposits and savings, the purchase of investment funds, real estate (funds), precious metals or shares can also be considered. In principle, investments in tangible assets (shares, equity funds, real estate) are suitable as a means of combating inflation. But here, too, investors must not blindly take hold. How the concrete allocation should look, is individually very different. This depends on the amount of assets, but of course also on the personal willingness to take risks. However, even this approach does not offer fully comprehensive insurance against the devaluation of money.

Call money and time deposits

Savings accounts, fixed-term deposits and overnight money are very safe forms of investment, which makes them a central building block of any financial investment. The reason for this is the statutory deposit insurance. In the event of a bank failure are so 100.000 euros per bank and customer protected. However, banks and savings banks offer very different interest rates for these types of investments.

It is advisable to regularly check whether the interest rates of one’s own bank (still) correspond to the top conditions on the market. If not, savers can think about a change of credit institution. Suitable overviews can be found at Stiftung Warentest, for example. Who does not want to change constantly its bank, can limit itself approximately to such banks, which offered in the past durably good conditions. Stiftung Warentest, as well as comparison portals on the Internet, highlight the relevant providers in their overviews.

An amount of at least two to three monthly net incomes should ideally be saved in a call money account. With such an iron reserve, one can react quickly to unforeseen expenses without borrowing.

In general, the following applies to investors: Check currently paid interest to their bank regularly. If these are significantly below the top offers, you should think about a change of provider.

Good fixed income deals have historically been above the rate of inflation. However, with such offers, the money is tied up for several months or years. You can neither spend it nor invest it elsewhere during this period, if interest rates rise during the agreed investment period. Therefore, spread over the maturities here as well: For example, divide the amount available for investment by time deposit in thirds and invest it for one, two and three years. So you can respond to rising interest rates at least with a partial amount.

Shares and investment funds

Investment funds can be a suitable part of the investment, depending on risk tolerance and experience. This is also a long-term capital investment. In contrast to individual shares, investment funds offer the advantage that even with smaller amounts a broad diversification, i.e. the purchase of many different shares, is possible. If the price of an individual company falls, price gains of other shares can compensate for this.

Exchange Traded Funds (ETF)

Particularly worth mentioning in this context are so-called ETFs (Exchange Traded Funds) as a low-cost alternative to conventional actively managed investment funds. While with the latter the fund manager himself decides which and how many shares he buys for the investors, an ETF makes the work easier for himself. It simply copies the composition of an index, such as the German Stock Index (DAX). This mainly saves costs, as the management fees of ETFs are significantly lower than those of traditional mutual funds. However, if a fund incurs low costs, it must generate much lower profits in order for the investor to achieve a positive return.

Open-ended real estate funds

Also open real estate funds can be a suitable part of the financial investment. Recently, however, the industry has offered little positive news due to numerous fund closures: During the financial crisis, many investors wanted to get out of real estate funds by returning their units to the fund company. According to the rules of the time, this was possible almost every day. But much of the money was in real estate, which is known to be difficult to make money quickly.

Since the funds could not meet all payout requests, they suspended share redemption altogether. As a result, for the time being no investor got his money, but had to wait until enough properties could be sold. This waiting period may well be several years. To resolve the contradiction between availability at any time and the long-term commitment of money in real estate, the legislator has issued new rules. In many cases, fund units must now be held for a certain period of time before the investor is allowed to return them again. He also has to observe notice periods in the process. Whether the new regulations will prove themselves in the future remains to be seen.

Gold, silver and platinum

Gold, silver and platinum in the form of bars and coins are often touted as a safe haven against inflation. But here, too, caution is advised. Precious metals are a risky form of investment. They offer no interest or dividends, profits are only made when the price of the precious metal rises. The best example of this is the gold price. After a seemingly unstoppable rise that lasted more than ten years, the gold price collapsed in 2013, losing a third of its value. Who invests in precious metals, should do this therefore only with a small portion of the total assets. Many precious metals such as gold are quoted in U.S. dollars, so investors take additional currency risk.

We have compared the advantages and disadvantages of investing in gold in a separate article. We also present concrete products for investing in gold there.

No rash signing of Riester contracts

Riester can be worthwhile for consumers who have children and actually get the appropriate allowances. Even a high tax burden can be reduced by making contributions to the Riester pension plan. Investors should look however also then exactly, which riestergeforderte product they lock. The acquisition costs, especially for an annuity insurance are sometimes high. In any case, the promotion should not be the only reason for the deal, it is important that the product fits the investor.

In addition to the Riester subsidy, there are also other government subsidy models. These can also be worthwhile in principle (such as capital-forming benefits) or in individual cases (such as company pension plans).

Your experiences are important!

For market observation from the consumer’s point of view can Your experiences can be very valuable: describe your Difficulties with companies, suppliers or products.

Caution with high interest promises (wind parks, forest investments, real estates and CO)

Special caution applies to high interest promises. Current to call for example participation in wind and solar parks, in the building of trade real estates, in ship funds or in forest investments. These are gladly advertised as yield-strong and safe. As a general rule, high returns are only available for risky investments. In the worst case, there is the threat of a total loss, i.e. the loss of all the money invested. It is even possible that investors must still fresh money nachschieben.

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