Rapid increase: 3.25 percent interest for three years fixed deposit are in it

Investing the savings in a time deposit account has long been something for enthusiasts.

Rapid increase: 3.25 percent interest for three years fixed deposit are in it

Investing the savings in a time deposit account has long been something for enthusiasts. The yield in recent years has been too low. But the tide is slowly turning - the conditions are getting much better. At least on paper, as Finanztest can determine.

For many years, savers have grumbled about low, no, or even negative interest rates. Most recently, the European Central Bank (ECB) reacted to the high inflation rates in the euro area and increased the so-called main refinancing rate by three-quarters of a percentage point to 1.25 percent.

Interest rates on fixed deposits are now rising faster than they have in years. This shows the financial test investigation of the conditions of more than 140 banks. The average return of the top ten providers in the long-term financial test is 2.54 percent for one-year time deposits, which is higher than it has been in the last nine years.

According to the Bundesbank, in 2021 there were 2.15 trillion euros in current and overnight money accounts in Germany with little or no interest. Without those who welcome the ECB's move to dampen the mood, it should not go unmentioned that the inflation rate in Germany was 10 percent at the end of November. As a result, interest rates are still very negative in real terms.

But at least on paper things look friendlier. There is now up to 2.77 percent interest for one-year fixed deposits that are securely invested (at the French EBI Groupe Ecobank via the interest portal Zinspilot), for 2 years 3.05 percent and for 3 years fixed deposits already 3.25 percent (Addiko Bank - via World Savings).

In their interest rate comparison, the testers only include banks from EU countries, the European Economic Area and Great Britain that have received top ratings for their economic strength from the three largest rating agencies. Because only here do the testers consider the deposit insurance to be so stable that investors could be compensated promptly in the event of a major bank failure.

In view of the interest rate rally, however, Finanztest advises not to commit yourself for too long. Fixed-term deposits with a commitment of more than three years are currently not worthwhile anyway. And in order to benefit from further increases in interest rates, customers should invest their money in products with different maturities, for example one, two and three years. If a tranche falls due, it can be invested on better terms. If interest rates fall, at least parts of the investment are still interest-free. When concluding a multi-year fixed-term deposit, savers should ensure that the flow of interest occurs annually. With most offers, the interest is paid annually to an investor's account and is then also taxable. However, there are also fixed-interest investments in which the interest is credited to the investment account and interest is accrued in the following year. That's good, because that's how the compound interest effect works.

Doing nothing at all leads to real wealth losses. Should inflation solidify at an average of 5 percent per year over the next five years, the purchasing power of 10,000 euros in an interest-free account will melt down to around 7,835 euros. This corresponds to a loss of almost 22 percent.

Fixed deposit accounts in comparison

(This article was first published on Tuesday, December 06, 2022.)