What is the point of building savings?
They often offer low loan interest rates, but also low savings interest rates and high setup costs: Building society contracts. However, for some homebuyers, concluding one may still be sensible.
There were around 22 million concluded building society contracts in Germany at the end of the previous year. For buyers, this financing option has become attractive again recently, since construction loans have become more expensive. In general, building societies demand significantly lower loan interest rates than banks. We explain what you should know about building society savings.
How the building society contract works
Through the contract, you save equity for the construction, purchase, or modernization of your own property. First, you determine the amount that should be accumulated. For this so-called building society sum, you pay a certain amount into the contract each month. Once property owners have saved a part of the sum - usually half - they can withdraw the balance. They borrow the remaining amount up to the total sum from the building society.
Before concluding a contract, consider when you need the financing and how much you can save each month. Based on this, choose the building society tariff.
Calculate the allocation date
You should calculate your contract so that it is paid out in time for your desired date, i.e., reaches the so-called allocation maturity. Otherwise, you may need an expensive interim financing. Building societies cannot give you an exact date when the money will come - due to legal reasons. However, they roughly inform in savings and repayment plans about the payout.
Keep an eye on the interest conditions
The interest rate for your building society loan is fixed at the time of contract conclusion. Often, the interest is better than in the conventional construction financing. Roland Stecher from the consumer advice center Bremen sees this as an advantage: "You secure the currently low interest rates for the future." Partly up to ten years in advance and independent of how the market interest rate develops. This ensures planning security.
However, the favorable loan is opposed by poorly interest-bearing balances. "The return is a disaster," says Stecher. To limit this disadvantage, only the contractually agreed minimum balance should be saved. Stecher recommends investing a maximum of 50,000 euros in the contract due to the low interest rate. The rest of the money should be invested elsewhere.
A component in the financing mix
Building society loans supplement the main credit from the bank. According to experts, they are rather unsuitable for a complete financing. In general, it is sensible to cover 20 to 40 percent of the purchase price with the building society sum, as advised by the magazine "Finanztest" (Issue 5/2024). The reason: Building society loans must be repaid faster. This increases your monthly burden and thus narrows your financial scope.
On the other hand, special repayments of any amount are possible. These reduce the interest burden. Unlike commercial banks, building societies usually do not charge an interest surcharge for special repayments or an early repayment fee if the loan is repaid earlier than originally planned. How much money is needed from the building society contract and the classic mortgage loan should be calculated individually by each property buyer.
The state contributes as well
The State Subsidizes Building Savings Contracts Under Certain Conditions
Basically, there are the housing construction premium, the employee savings allowance, and housing Riester. The amount of the subsidy - and whether there is one at all - depends on income: For the housing construction premium, singles receive 70 euros per year, and couples receive double that amount. For the employee savings allowance, the maximum is 43 euros for singles and 86 euros for couples. The annual subsidy for a four-person family can be up to 950 euros for housing Riester. It's important to know: "There is no double or triple subsidy," says Alexander Nothaft from the Association of Private Building Societies.
The Disadvantages of Building Savings
Building savings has four major drawbacks: firstly, low interest rates on deposits. Secondly, the commission. The one-time fee is due upon contract conclusion and applies to both the savings and loan portion. "If the costs are higher than the interest rates, building savings can be a losing proposition," says consumer advocate Stecher. In other words: The contract may not have been worth it. This correlates with the interest rate development.
Thirdly, the monthly savings rate. "Finanztest" recommends adhering to the standard rate. Those who pay less risk contract termination. Higher amounts can be rejected by the association. The standard savings contribution usually corresponds to three to five percent of the building savings amount - the savings amount is thus not very flexible. And fourthly, the variety of tariff variants and conditions. This makes comparisons difficult and thus also finding the optimal solution.
When Building Savings is Worthwhile
For relatively small loans up to 50,000 euros, building savings can be worthwhile, according to Roland Stecher. This is because commercial banks often charge surcharges for such amounts, which are not present in building savings contracts. The low loan interest rates can be advantageous for people who are seriously considering investing in their own property and will likely need a lot of external capital. However, it is then advisable to ensure that the building savings tariff can be adjusted to the individual life situation if it changes.
After calculating the allocation date for their building society contract, homebuyers should consider investing excess funds elsewhere due to low interest rates. Building society loans supplement the main credit from the bank and can be beneficial for individuals planning to invest significantly in their own property, given the favorable loan interest rates.
