Savings plan instead of savings passbook - this is how saving works nowadays

Mon, September 20, 2021 11:32 AM By Logan

How you can get more out of your money: We dispel the most common myths regarding fund saving.

there is still time to take advantage of the changes in 2021
This Article in Brief

  • New times require new strategies: Classic forms of savings such as the savings book are hardly worthwhile due to inflation and low interest rates

  • An alternative can be regular and long-term savings in a fund savings plan

  • We take a close look at the biggest reservations about fund saving and show you ways to successfully build up wealth

The good news first: The proportion of Germans investing in equities has increased significantly in 2020 compared to the previous year. Nevertheless, a large part of the population still relies on the classic savings book. Only 17.5 percent of the population aged 14 and over were invested in the stock market last year, according to statistics from Deutsches Aktieninstitut.

The ongoing period of low interest rates and rising inflation are not making it easy for savers. They now need a new strategy that will allow them to increase their money. However, if you hope that your assets could continue to yield just as much after decades in the savings book, you will most likely be disappointed in the end. Convenience and inertia can therefore cost money today.

The savings passbook hardly yields anything these days. Stocks can yield 6 percent or more per year. Over the years, there have been considerable differences between savings books and equity fund savings.

Frank Breiting, DWS-Expert

A fund savings plan can be an alternative to the classic savings investment: A fortune can be built up step by step. However, many people still have "fear of contact" with investment funds. So it's high time to get rid of the most common misconceptions about fund saving:

1. "Funds are only for the wealthy. I have no money to save"

There are funds for every budget – savers can get started with as little as 25 euros a month and get closer to their personal financial goal month after month with a fund savings plan. And by the way, this is completely flexible: you can suspend or change the savings rate at any time.

With a fund savings plan, investors regularly buy shares of a mutual fund for a fixed amount. The practical thing about it: Savings not only grow through regular deposits. The income of the fund can also help with savings. This also applies to the compound interest effect on the performance of the fund: If dividends are not paid out, but are invested again and again, a considerable plus can come together over the years.

2. "I'm not familiar with it and don't have time to worry about it all the time"

If you want to save with funds, you don't have to be an expert yourself: savers can easily benefit from the expertise of experienced fund managers who professionally take care of the strategy and set up of an investment fund and make all important decisions.

Fund savings plans relieve investors of the pressure to make decisions: With a fund savings plan, they continuously invest smaller amounts and do not have to look for the ideal time to start. The savings plan buys at lower and higher prices. In the long run, this results in a more favorable average price for your fund units, the experts speak here of the cost-average effect. This can later bring a plus in the average return.

3. "I can't get my savings back out"

False! Should a financial bottleneck occur, for example, the equity fund shares purchased by means of a savings plan can also be sold again at any time. Anyone who invests here is therefore flexible. Nevertheless, fund savings plans are more recommended for long-term, regular savings, as the value of the acquired fund units is always dependent on the fluctuations of the capital market.
Fund savings plans do not have a fixed term. There is therefore no end or payout time as for example with life insurance. Savings plans can be terminated at any time.

4. "It's not worth it"

When saving funds, in the vast majority of cases, the money is invested in a broad mix of stocks, bonds or both. The following applies: The longer the investment horizon, the better.

For example, anyone who has paid 100 euros per month into an equity fund with a focus on equity funds globally over the past ten years could look forward to an average increase of 8.9 percent per year during this period (all costs including issue surcharge taken into account). This is shown by the savings plan statistics of the fund association BVI. The savings at the end of the term amount to a considerable 19,026 euros. From the saver's own pocket came only 12,000 euros – the sum of his deposited savings. The plus of over 7,000 euros is impressive proof that fund saving can really be worthwhile compared to doing nothing. *

5. "I can still do that later"

No more procrastination: Finally tackle your finances with a financial coach at your side and professional advice. Instead of leaving your money idle in an account, you can let time work for you.

We are happy to help you make the appropriate selection of funds that suits your personal expectations.

* Past performance is not a reliable indicator of future performance. Source: BVI. Deposit per month: 100 euros. Results take into account all costs including the issue surcharge. The figures are average values from the equity funds global fund group. Average return: 8.9 percent per year. Cut-off date: 30 June 2021
This article first appeared in the German-language version of this page on 01.09.2021

Get your finances in order!

Get an overview right at the beginning of the year. I am happy to help you.

Get in Touch!