Savings letter comparison
What is a savings letter??
The savings bond issued by many banks and savings banks is an interest-bearing investment for the middle saving horizon. Here, savers invest capital for a certain period and receive a guaranteed fixed interest rate. Savings bonds are characterized by capital security, yield guarantee and fee-free. Thanks to fixed interest over the respective term, the savings result can be calculated in advance. Value losses or negative growth, such as those that are possible with listed securities, are excluded.
Savings letter comparison brings higher interest
Every savings bond guarantees a certain return. The amount of interest depends on the term of the savings bond.
A rule of thumb: The longer the term the higher the interest. However, this is not always the case. If the market expects a decline in the general interest rate in the near future, it can happen that long-term savings bonds have a lower interest rate than short-term savings. The fixed interest rate for the respective savings certificate is the same over the entire savings period and can not be changed by the bank or savings bank. In addition to the term, the general interest rate and, in some cases, the amount of the investment also influences the level of savings-rate interest.
Savings bond interest payment
The interest payment on savings bonds can be made differently. The rule is annual interest payment at the end of each year; In exceptional cases, the monthly interest payment can also be found.
A special form is the interest-rate savings note: In this variant, the interest remains with the bank and accumulate until the end of the term. At the end of the savings period, the interest plus the capital invested will be repaid in one fell swoop. Advantage: savers benefit from the compound interest effect. Disadvantage: There is a threat of withholding tax, as the saver’s lump sum is quickly exceeded when interest is accumulated.
The counterpart to this is the discounted savings letter. Here the saver determines in advance, which amount he would like to have reached at the end of the term. The Bank deducts from this amount the accrued interest over the term. The remaining amount must be invested by the saver at the bank. Example: desired payout amount 20,000 euros, savings period 10 years, interest rate 3.9 percent. In this case, the investor would have to transfer 13,641 to the bank.
Savers can come to the savings target with a lower capital expenditure than with a traditional savings certificate.
The papers work with interest accumulation – it threatens withholding tax.
Savings Note: Investment from one to ten years duration
Every savings letter has a specific term. Usually investment periods are in the twelve-month rhythm, that is, savers can invest their money, for example, for 12, 24 or 36 months. As a rule, banks offer terms of between one and five years; some banks offer savings bonds with a maturity of up to ten years.
Attention: A particularly long savings bond maturity is worthwhile only in high-interest phases, if savers can secure above-average interest for a long period of time.
Savings bond flexibility
To remain flexible savers can split their investment amount and distribute it on savings bonds with different maturities. For example, capital is freed up at various times, which, for example, can be converted into better-yielding savings bonds or invested in other financial products if interest rates rise.
Savings Note: Many banks require a minimum investment
A savings bond serves the one-time investment. For a relevant return to be achieved, banks and savings banks prescribe a certain minimum investment amount. Usual are minimum investment amounts of 2,500 euros. Some banks already offer savings bonds from 500 or 1,000 euros. In rare cases, a minimum deposit of € 5,000 is required.
Savings bond account management
The investment by savings letter requires no savings or checking account at the respective bank. Also account maintenance fees or closing costs do not arise. Either the investor transfers the investment capital himself or he gives the bank a debit order. At the end of the savings bond term, the capital flows back to the specified reference account of the saver.
Savings letter: A notice is not provided
The savings letter is excluded from termination. Investors must therefore think carefully about what term they choose for their savings. A few banks offer the option, in the case of an unforeseen event, of releasing the money before the normal maturity date. However, this is usually associated with interest losses.
Savings bond deposit insurance
Savings bonds are subject to the highest deposit insurance. In Germany there is a two-stage security system, which is used in the bankruptcy case of a bank: Within the EU, bank deposits – including savings bonds – up to the amount of 100,000 euros to 100 percent guaranteed by law. In addition to statutory deposit insurance, advanced security systems are used by banks and savings banks.
The most comprehensive is the deposit insurance fund of the Federal Association of German Banks (BdB). It secures capital contributions in the tens of millions of euros per saver. The same applies to deposit insurance with savings banks and Volksbanken and Raiffeisenbanken.
Savings and withholding tax
Savings bonds are subject to the 25% withholding tax plus solidarity surcharge and, if applicable, church tax. As a result, up to 28 percent of the interest income can be lost. Banks pay the withholding tax directly to the tax office. But before that happens, the saver lump sum of 801 euros per saver. If investors give their bank an exemption order up to the full amount of the saver’s lump sum, interest income will remain deductible up to 801 euro, with couples double.
Savings and time deposit differ
At first glance, savings and time deposits are quite similar: interest rate and maturity are fixed, no fees are incurred and the capital is non-terminable. In detail, however, there are differences between the two fixed-income investment forms:
Terms of the savings letter
The term of the deposit is not set in stone. As an investor, apart from the standardized terms of three, six and nine months or annual time intervals, you can also arrange individual appointments with your bank. That’s why term money means term money. Savings bonds usually have annual terms of up to ten years.
Interest on the savings letter
For fixed deposits, you either receive interest annually or the bank pays out at maturity. The Austrian Autobank and the Deniz Bank, for example, collect the interest until the end of the term, but Grenke Bank and VTB Direktbank pay them out annually. With the savings letter, you can additionally use a third interest rate model: the discounted savings bond.
Here, the expected interest income from the outset is deducted from the purchase price, so that the purchase price is well below the nominal value. On the due date, you will then be redeemed the full face value (including interest). Flexible interest payments are offered, for example, by ABC Bank, which distributes the income from your savings bond either quarterly, annually or at maturity.
Fixed-term deposit is a classic bank deposit. A savings bond, however, is a registered bond, ie a claim to the bank. Positive: Both forms are protected by statutory deposit insurance. However, you should pay attention to the Savings Banks and Savings Banks Savings Banks, as these usually do not issue registered bonds but bearer bonds.
These savings bonds are not the subject of statutory deposit insurance. The capital guarantee is provided by the deposit insurance funds of the savings banks and VR banks. Critical are papers with so-called "subordination agreement". In the event of bank failure, all other creditors are served in this case before the savings bank owner is compensated.
Cancellation modalities of the savings letter
You must cancel the fixed-term deposit before the end of the term, otherwise the capital will be automatically re-invested at the then valid conditions. Savings bonds, however, run without reinvestment by itself.
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