Bank savings in Germany: current account, Tagesgeld, Festgeld and deposit protection

What you will learn

• What the current account, Tagesgeld and Festgeld are for, and their trade-offs.
• How to compare a short teaser rate with a lower permanent rate.
• How a simple fixed-term ladder balances interest and access.
• How statutory deposit protection works in Germany and its limits.

Explanation

Three account types

A current account (Girokonto) is for everyday payments: salary in, rent, card payments and standing orders out. It usually pays little or no interest. In Germany every consumer legally resident in the EU has a right to a basic payment account (Basiskonto), even with a poor credit history.

An instant-access savings account (Tagesgeld) pays a variable interest rate: the bank can change it at any time, usually when central bank rates change. Money can usually be moved back to your current account within one or two banking days, which makes it the natural home for the emergency fund.

A fixed-term deposit (Festgeld) locks money for a set term, for example 6 months or 1, 2, 3 years, at a rate fixed at the start. In most cases you cannot withdraw early.

Comparing offers correctly

• Teaser rates: many banks offer a higher rate to new customers for a few months, then a lower standard rate. Compare the average rate over 12 months, not the headline.
• Taxes: interest is capital income and subject to German flat-rate tax above the annual allowance (covered in the ETF course). Give each bank a Freistellungsauftrag (exemption order) so tax is not withheld unnecessarily; the total across all banks must not exceed your allowance.

Laddering fixed-term deposits

A ladder splits money into several deposits with different end dates, for example one third each for 1, 2 and 3 years. Each year one part becomes available and can be reinvested for the longest term, combining higher rates with regular access.

Deposit protection (Einlagensicherung)

Under the German Deposit Guarantee Act (Einlagensicherungsgesetz, based on an EU directive), eligible deposits are protected up to €100,000 per depositor per bank if the bank fails. This covers current accounts, Tagesgeld and Festgeld. Key details:

• The limit is per person and per bank, not per account. Two accounts at the same bank share one €100,000 limit. Check the legal entity behind brand names.
• For some temporarily high balances linked to specific life events (for example the sale of a privately used home, or certain payments linked to retirement, dismissal, marriage, divorce, birth, illness, disability or death), the law allows protection up to €500,000 for up to six months after the money arrives. The depositor must prove this.
• Private banks are covered by the Entschädigungseinrichtung deutscher Banken. Savings banks and cooperative banks use their own institutional protection schemes, which are recognised under the same law. Some private banks are also members of a voluntary fund; its protection is not a legal claim.
• Banks from other EU countries are covered by their home country's scheme, with the same €100,000 minimum but a different guarantor.
• Securities in a custody account (Depot) are not deposits; they remain your property (see the ETF course).

Rules can change; check the current details on the bank's deposit protection information sheet, which banks must provide.

Worked example

Hypothetical example: all interest rates are invented round numbers for illustration, not current offers. Taxes and compounding within the year are ignored.

Part A: teaser vs permanent rate on €10,000 for 12 months.

Bank X: 3.0% for 4 months, then 1.5%. Interest = €10,000 × 3.0% × 4/12 + €10,000 × 1.5% × 8/12 = €100 + €100 = €200 (average 2.0%).

Bank Y: 2.2% for 12 months. Interest = €10,000 × 2.2% = €220.

The lower headline rate earns €20 more.

Part B: Tagesgeld vs one-year Festgeld on €12,000. Tagesgeld 2.0% (assumed unchanged): €12,000 × 2.0% = €240. Festgeld 2.5%: €12,000 × 2.5% = €300. Extra interest for locking the money: €60.

Part C: protection check. €70,000 in Tagesgeld and €45,000 in Festgeld at the same bank = €115,000. Protected: €100,000. Unprotected: €15,000. Moving €15,000 or more to a second, separate bank removes the gap.

Common mistake

Practice activity

Hypothetical case: you have €18,000. €9,000 is your emergency fund. The rest is for a car in two years. Offers (invented): Tagesgeld 1.8% variable; 2-year Festgeld 2.4% per year, interest paid yearly. (a) Where do you put each part? (b) Calculate the interest for the car money over two years with yearly compounding. (c) Is the total protected at one bank?

Key takeaways

• Girokonto for payments, Tagesgeld for flexible savings, Festgeld for money with a fixed date.
• Compare the average rate over the whole period, not the teaser headline.
• A ladder of fixed-term deposits combines higher rates with regular access.
• Statutory protection: €100,000 per depositor per bank; check the legal entity and scheme.

Next step

In the next lesson you will learn which insurance policies protect your plan and which ones are usually unnecessary.