This is how it works: Invest fixed-term deposits in five steps

Interest rates on traditional savings investments appear to have peaked for the time being. If you want to invest your savings now, you can still benefit from attractive fixed-term deposits. We show you how.

For many years, it was practically irrelevant where consumers parked their savings. There was hardly any interest worth mentioning on safe savings investments. So why move money away from current accounts? Things have been different since the European Central Bank (ECB) tightened the interest rate screw last summer in an attempt to catch up with galloping inflation rates. Attractive interest rates have long been available again on overnight and fixed-term deposits.

However, now that the inflation rate in the eurozone has fallen sharply in recent months and the ECB has already refrained from pushing through further interest rate hikes at its two most recent meetings, there are increasing signs that the interest rates offered by banks on traditional savings products could soon be lower again. The reason: banks must assume that they themselves will also receive less interest on deposits parked with the ECB in the medium term.

The comparison portal Verivox found that the average interest rate for fixed-term deposits, i.e. an investment with a fixed term and fixed interest rate, fell again in mid-December for the first time in a year and a half - albeit only slightly. This is because interest rates of four percent and more are still being paid on fixed-term deposits. For 10,000 euros, this can mean an interest income of 400 euros per year.

For security-oriented savers who have surplus money in their current or call money account, it may therefore still be worth putting this money into a fixed-term deposit. We'll show you how:

1. consider the amount and term

How much money can I actually spare for a certain period of time? This is one of the key questions. Consumer advocates repeatedly advise leaving two to three net monthly salaries in your call money account. Ideally, it will earn at least a little interest and is also available at any time to cover unforeseen expenses - for example, if the washing machine or car breaks down.

If there is still money left over that is not needed for certain purchases in the near future, it can also go into a fixed-term deposit account.

Consumer advice centers and Stiftung Warentest recommend not investing the money in one amount for just one term. They advise the so-called staircase strategy. This involves dividing the available savings evenly over different terms of one to five years, for example. The sums that gradually become available can be reinvested at the end of the respective investment period at the then applicable interest rates.

2. compare offers

The easiest way to obtain an initial offer is to ask your bank. This is convenient, but is unlikely to yield the highest interest rates. It therefore makes sense to compare offers from other banks.

Stiftung Warentest offers such a regularly updated interest rate comparison on its website for a fee. The advantage is that it only lists offers from European banks whose deposit protection is considered stable enough by the testers to ensure that savers can be compensated promptly in the event of a major bank failure. The background: According to EU law, deposits of up to 100,000 euros per investor and bank must be protected.

Dirk Stein from the Association of German Banks advises against any offer outside the EU. With EU deposit protection, fixed-term deposits are basically risk-free. It is not advisable to take risks simply by choosing a bank.

Relevant comparison sites on the Internet or the business pages of a daily newspaper can also be helpful when making comparisons. However, investors should not blindly go for the first offer that comes along, but should instead sort out offers from Spain, Italy, Greece, Portugal or Malta, for example, which Stiftung Warentest advises against. This can make sense. "Investors have never lost a euro in savings deposits with banks that we have recommended," says Uwe Döhler from Stiftung Warentest.

When comparing offers, investors should also consider the type of interest rate, recommends Döhler. A few banks add the annual interest earned on multi-year fixed-term deposits to the investment amount and include it in the interest rate - this is the ideal case, as it increases the return. However, it is more common for investors to be paid the interest once a year. At least then they can dispose of it themselves.

However, it is unfavorable if the accrued interest income is only added to the investment amount and paid out at the end of the term. This means that investors neither benefit from the compound interest effect nor can they dispose of their interest income during the term. Stiftung Warentest also sorts out such offers.

3. conclude a contract (and open a settlement account)

Once you have decided on one or more offers, you must conclude the corresponding contracts with the desired bank - either online or in the branch.

If the choice has fallen on the house bank, the subsequent procedure may be a little easier. In this case, the advisor may take on a large part of the work and arrange for the savings to be debited from the existing current account.

If you have chosen a financial institution with which you previously had no business relationship, in some cases you will have to open a so-called clearing account with which the fixed-term deposit account corresponds. This should be free of charge. If this is required, savers must prove their identity to open the account - according to Uwe Döhler, this is often done using the Videoident procedure via computer, tablet or smartphone. Sometimes there is also the option of using the Postident procedure at the nearest post office.

If the executing bank or provider does not require such a clearing account, it is sufficient to provide an existing current account.

Important: When submitting the application, check whether the product must be terminated at the end of the term and keep an eye on this. You should also object to any pre-set reinvestment. If you don't do this, you run the risk that the money will be reinvested immediately after the end of the investment period for the same period, but at the conditions applicable at that time. "This is risky in that I don't know the interest rate that will then apply," says Dirk Stein.

4. make money available

Whether you are setting up a new clearing account or an existing current account: Make sure that the desired investment amount is available at the start of the term. The fixed-term deposit is usually withdrawn from this account, but in some cases it has to be transferred independently. Ask if you are unsure.

Incidentally, your interest and the investment amount at the end of the term will also end up in the agreed interim account.

5. create an exemption order

No tax is payable on investment income of up to 1000 euros per year per individual or 2000 euros per jointly taxed couple. If you want to avoid tax deductions, set up an exemption order for the required amount with the bank where your fixed-term deposit is held. If you receive interest or dividends from different banks, you can set up several exemption orders, but these must not exceed the total amount of the respective saver's lump sum.

Please note: If you have chosen a bank that is not based in Germany, you cannot create an exemption order. Financial expert Döhler points this out. Instead, the interest income received must be declared in your tax return. The tax office will then determine whether or not you have remained below the saver's allowance and therefore exempt from capital gains tax in a given year.