German term deposits are fixed-term investments based on an interest rate agreed between the customer and the financial institution.
The time to maturity can range from one month to several years. Term deposits are therefore investments that enable savers to invest their money until a fixed date. Until this date, they may not withdraw the funds from thier term deposit account. Savers therefore know when the money will be paid out and can rely on the return agreed in the contract.
The opposite of a term deposit is a call deposit, which allows customers to withdraw their money on a daily basis, albeit at interest rates that can also change from day to day and be lower than those of term deposits.
For which customers are term deposits best suited?
Term deposits offer customers planning security as the interest rates are pre-determined and guaranteed. They are therefore suitable for customers looking for a conservative, safe investment as a means to preserve wealth.
Term deposits are suitable as a short-term investment, for example if you are interested in “parking“ money that might be required for investing at some future time. But you can also use term deposit investments for wealth accumulation or as part of your retirement provision. As term deposits are unaffected by price fluctuations, they are an especially safe means to invest money.
Is there any kind of protection for the money held in my term deposit account?
In Germany, deposits are protected by the statutory deposit guarantee up to an amount of 100,000 euros per customer. This also applies to banks in other EU member states. For amounts in excess of this, in Germany the voluntary deposit guarantee schemes of the particular banking associations may offer protection. We strongly advise that you make your own enquiries regarding this in order to avoid any risks. You should also think carefully before investing money in term deposits with providers outside the European Union due to the insolvency risk.
When can I withdraw the money from my term deposit account?
The money invested and any interest accrued is paid out to you after the term ends. The funds are credited to the reference account agreed with your credit institution. The reference account is usually your normal current account.
During the term, you may normally not prematurely withdraw the funds from your term deposit account. If the credit institution allows a premature withdrawal by way of exception, you may incur a loss in interest, or the institution may charge a penalty for early termination. All this diminishes the return on your investment.
Make sure you keep a careful eye on the maturity date of your term deposit: you might need to terminate or extend the investment at a specified time – depending on what you have agreed contractually with the provider. Should you disregard this clause of the contract and fail to respond on time, you may expose yourself to risks arising from a lack of adequate liquidity: in such a case, the credit institution automatically extends the term deposit at the interest rate applicable at that time (which might be lower), and you would not receive the funds although you might need them.
Where can I invest in a term deposit?
You can invest in a term deposit at a credit institution. Information and advice can be obtained at the branches, online or by telephone at the respective provider. Give careful thought in advance to how long and for what purpose you intend to invest your money, and examine the offerings thoroughly. The interest rate can differ from institution to institution.
If the euro is not the currency of your investment, you should also bear in mind that a currency risk can arise from exchange rate changes.
Are term deposit investments subject to taxation?
The interest on the term deposit paid to you by the credit institution is subject to taxation. In order to benefit from tax-free allowances, you can apply for a tax exemption at your credit institution.
In what way are providers of term deposits supervised?
Domestic banks require authorisation from BaFin for conducting deposit business. German banks are supervised by the Deutsche Bundesbank and BaFin and, if they exceed a certain size, also by the European Central Bank (ECB) within the scope of solvency supervision.
BaFin does not check whether the credit institutions are offering you favourable conditions for term deposits. BaFin is also not responsible for checking the contractual provisions.
Customers of foreign banks or of banks which are not subject to supervision in Germany may experience certain restrictions. For example, complaints might only be accepted in the local language, or there may be different legal requirements and liability limits.
