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BANKING

How to grow your savings in Germany during high inflation

With savers hammered by high inflation, banks in Germany are offering unorthodox options to make your money last longer. So what's the best way to stop your savings getting consumed by the rising cost of living?

A piggy bank
A German piggy bank with euro notes. Photo: picture alliance/dpa/dpa-Zentralbild | Patrick Pleul

The last few years in Germany have been pretty tough financially for most people. People lost work during the Covid-19 pandemic, and then were hammered with the rising cost of living and energy prices caused by Russia’s invasion of Ukraine.

The once-solid property market has collapsed, and stock prices of even huge companies like Siemens Energy can be very volatile. Meanwhile, inflation current stands at 4.5 percent, so €100 will only be worth €95.5 in a year’s time if that rate holds.

All in all, it’s hard to know what to do with your money – that’s if you’re lucky enough to have any money left.

READ ALSO: Germany sees record drop in property prices 

An interesting and novel way around this is fixed deposits or “Festgeldzinsen”, according to analysis by consumer comparison portal Verivox. Inflation and interest are both so high that borrowers are desperate for money, and you can provide some for one year, even in relatively small amounts.

“The return of positive real interest rates is an important turning point for savers,” said Oliver Maier, Managing Director of Verivox Finanzvergleich GmbH.

This is being called a “Wende” or turnaround in investment.

READ ALSO: German Word of the Day: Die Wende

For the first time in decades Germany has interest rates higher than inflation, with some providers paying as much as 4.75 percent interest. With inflation at 4.5 percent in September and likely to fall, that’s effectively money for nothing.

For these high rates, you are best off looking at yearly fixed deposits at banks in other countries in Europe.

But there is a catch: your deposit is only legally protected after €100,000.

Piggy bank in Saarland

A piggy bank in Saarbrücken, Saarland. Photo: picture alliance/dpa/CosmosDirekt | AdobeStock_108314803

On the other hand, fixed deposits in German banks, where your deposit is always legally protected, aren’t currently worth your time or money. The real interest rate – the value after inflation – is sadly in the red, losing 1.18 percent annually.

Short term “daily” deposits which can be withdrawn at any time are not worth it at all, with much lower rates.

What about current accounts?

Even if you aren’t a savvy investor, almost everyone in Germany will have a current account. You might be looking at inflation eating away at your savings with worry. The good news is that some German banks have increased interest for current accounts too.

The highest for a current account is C24, the in-house bank of consumer portal Check24, which offers 4 percent.

If you prefer a more established credit institution, Santander has an impressive 3.7 rate for new customers, and ING and Deutsche Kreditbank have raised their interest rates from 1 to 3.5 percent until January.

This of course isn’t coming from the goodness of banks’ famously big hearts. Handelsblatt reports that there is competition returning to the sector as the deposit holdings of savings and cooperative banks fell in the first half of 2023 for the first time since the 2008 financial crisis.

Has inflation peaked?

Leading figures from the European Central Bank (ECB) met earlier this week in Greece to discuss policies. While there, Central Bank President Yannis Stournaras proudly mentioned that Greece’s economy is growing faster than Germany’s.

Due in part to aggressively high interest rates, inflation rate has been falling across Europe and now stands at 4.3 percent on average. But that’s still twice as high as the ECB want it to be.

READ ALSO: Why 2023 will be a better year to grow your savings in Germany

What about investment in general?

If you are thinking long term instead of just getting through this crisis, then experts at Nico Hüsch advise that broadly diversified equity funds – spread-betting with your money – are still the best investment in any portfolio that you invest in for the long term.

That means over 12 to 15 years. However, investments do always contain an element of risk. 

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HEALTH

How much more residents in Germany might have to pay for health insurance

People in Germany saw an increase in health insurance costs at the start of the year. It's now expected that they will be hiked up again next year.

How much more residents in Germany might have to pay for health insurance

Health insurance organisations are warning that costs will be hiked up again soon due to concerns over funding. 

Doris Pfeiffer, CEO of the National Association of Statutory Health Insurance Funds (GKV-Spitzenverband), told Germany’s Tagesschau that insurance funds are expecting a billion-euro deficit.

She said it was a tough year “because we don’t have particularly good prospects”.

For people paying statutory health insurance, things could become more expensive next year. Around 90 percent of people in Germany are covered by statutory health insurance.

The contribution rate is fixed by law and stands at 14.6 percent. The additional contribution that the health insurance funds set for their members was raised to 1.7 at the start of this year. 

The latest increase gave statutory insurance funds the ability to charge up to 1.7 percent on top of the standard 14.6 precent contrinution, though not all insurance funds chose to do so.

The costs are split between the employer and employee, so workers in Germany would pay half of any increase. 

READ ALSO: Reader question: How can I change my German health insurance provider?

How much could additional costs rise next year?

Due to the funding issues, health insurers expect an increase of up to 0.6 percentage points to the additional contribution threshold. What this would mean for the insured depends on a few variables such as their income and their insurer.

Someone earning €2,000 gross per month, for example, would have to pay €6 extra per month if their insurer opted to increase additional contributions by this amount. Meanwhile, a gross income of €4,000 would mean €12 extra per month. The employer’s share would be added to this. 

health insurance cards

Many health insurance cards in Germany double as a European Health Insurance Card (EHIC), meaning that they can be used across Europe. Photo: picture alliance/dpa | Jens Kalaene

“That may not sound like much at first glance,” said Pfeiffer. “But there are people who earn very little for whom this is a lot – supermarket cashiers, lorry drivers.”

It comes following a rise in fees at the start of the year. From the start of 2024, additional contributions for statutory health insurance rose by around 0.1 percent in Germany.

Why are costs increasing?

The German healthcare system is one of the most expensive in the world.

As German society ages more, costs continue to rise – and the Covid pandemic didn’t help matters. The National Association of Statutory Health Insurance Funds estimates that this year alone it will cost around €314 billion to provide care for everyone who is insured. 

The money is mainly spent on hospitalisation costs and medical treatment.

READ ALSO: Why long-term care insurance fees are likely to rise in Germany next year

Health Minister Karl Lauterbach (SPD) has so far not presented any concrete proposals on how he intends to relieve the burden on health insurance funds in future.

Instead, the system is likely to face further expenditure. Lauterbach’s hospital reform is expected to drive up costs, while proposals to pay GPs more in order to combat the shortage of doctors would also push up expenses. 

READ ALSO: German ministers greenlight plan to improve healthcare at GPs

Pfeiffer called for a plan to tackle the rising costs.

“We now finally need an approach that puts this healthcare system on a new footing,” she said.

In the coalition government’s initial agreement back in 2021, the parties vowed to support health insurance funds with more tax revenue.

But as difficult budget negotiations take place, it doesn’t look like this will happen. 

This is causing friction among the coalition made up of the Social Democrats (SPD), Greens and Free Democrats (FDP). 

Green budget politician Paula Piechotta, for instance, is unhappy about this.

The opposition CDU/CSU also taken the opportunity to swipe at the government.

“This is not acceptable,” said CDU health politician Sepp Müller. “The tense situation in the social security system cannot continue to be ignored.”

However, it should be noted that there was no plan to help provide more money to statutory health insurance under the previous Health Ministry headed by the CDU’s Jens Spahn. 

When the SPD’s Lauterbach took over in 2021, there was already a funding gap of billions of euros. 

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