Is interest finally coming back? What savers now have to pay attention to

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Everywhere there is hope of normalization in the economy.

Thanks to the advances in vaccination, especially in the USA, some hope not only for a halfway normal summer vacation, but also for an imminent economic boom.

As a result, prices on the stock market have already risen sharply.

Wall Street just got its best start to May in years.

Only one person has been waiting in vain for any kind of normality: the savers.

Anyone who saves money in their account looks further down the drain.

Interest rates have risen recently, but the market conditions are far from what most people understand by a normal interest rate level.

The relevant ten-year returns are now only 0.2 percent in the red instead of 0.6 percent as at the beginning of the year, but there are no significant positive interest rates in sight anywhere in this country.

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In the past, the conditions for savers improved with the economic upturn.

But will that also be the case this time?

WELT answers the most important questions about interest rates.

Are there better times ahead for interest savers?

Economically, everything points to recovery.

The federal government expects an increase of 3.5 percent for Germany, the Deutsche Bank even of four percent.

(In the USA, the experts even expect a plus of six percent.) Such high growth rates would basically justify higher interest rates, since capital is in demand in a booming economy and what is in demand rises in price.

Source: WORLD infographic

For years, however, this economic law has been overshadowed by the actions of the central banks, which keep the market interest rate artificially low by, among other things, massive bond purchases.

Despite the first signs of recovery, key interest rates are still at record lows in all major economic areas.

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As long as the ECB, Fed and other central banks stick to this ultra-loose monetary policy, there is little hope for savers of interest rates as in "the good old days".

What are the consequences of rising inflation?

In any case, inflation has risen sharply.

In April, inflation in Germany was two percent, the highest it has been since April 2019.

However, the central banks emphasize almost like a mantra that the rise in consumer prices is only a temporary phenomenon.

Because prices collapsed in the first lockdown last year and the federal government has meanwhile lowered the value added tax, the money guards believe that the base effect is the main factor here.

In addition, inflation has always been below the target of two percent in recent years, which means that higher inflation can now be tolerated to compensate for this.

What are the consequences of higher inflation for savers?

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Even if most savers focus primarily on the nominal interest rate, another factor is decisive: the real interest rate.

This is the name of the interest minus the loss of purchasing power due to inflation.

Because depositing money in the account or purchasing savings bonds or bonds is not an end in itself.

For retirement savers in particular, it is a matter of at least maintaining purchasing power through interest investments, if not increasing it through a positive real interest rate.

Source: WORLD infographic

That was not possible for conservative interest savers in recent years in this country.

In April, it was five years ago that ten-year Bunds last generated a positive real return.

How much have savers lost due to the negative real interest rate?

Daniel Franke from the investment portal Tagesgeldvergleich.net has calculated that savers have had to accept a real loss of interest of more than 200 billion euros in the past ten years.

DZ Bank comes to higher sums because it includes in its calculation the theoretically lost positive interest that would have existed in a “normal” scenario.

The dimensions involved are enormous.

Source: WORLD infographic

After all, the German citizens alone have 2.6 trillion euros in current and overnight money accounts.

“The low interest rate is a horror for savers,” says Christian Kahler, chief strategist at DZ Bank.

With ten-year government bonds, the benchmark for fixed-interest rates, savers would, extrapolated over ten years, destroy around a fifth of their capital stock.

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What options do savers have?

Conservative, risk averse investors have few options.

Fixed-term deposits with a multi-year term used to be a way of getting more than inflation.

In times of financial repression, the condition of five- or ten-year fixed-term deposits has even been passed down.

With Tagesgeldvergleich.net even 120 months fixed money throws at best 1.5 percent, on average savers can only expect 0.76 percent.

"In view of the central banks' glut of liquidity, I personally do not believe that fixed-term or overnight money savers will achieve positive real returns in the next few years," says Franke.

Most banks would have no incentive to offer their customers more.

"They are already suffering from excessively high deposits that they cannot provide as loans."

Where is there still interest at all?

Anyone who still wants to earn interest, i.e. fixed current income, in times of “financial repression” has to take a risk.

Debt instruments from companies with poor credit ratings can be suitable for this purpose.

For example, a bond from the MDax Group K + S with a term of July 2024 yields a current yield of 2.62 percent - i.e. above inflation.

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However, the potash producer only has a B rating with a negative outlook, which indicates a certain risk of default.

If things go bad, bondholders don't end up getting their face value back.

What are the alternatives?

If you want to spread the risk and have a securities account, you can stick to a fund on high-yield paper, in jargon high-yield bonds, for example the index fund SPDR Barclays Euro High Yield Bond ETF (WKN A1JKSU).

In the past five years it has made an average of 3.7 percent, which is more than inflation.

However, high-yield bonds have already performed extremely well recently and also present a risk of setbacks.

At the beginning of the pandemic, the high-yield ETF had collapsed by 30 percent.

What should pension savers do to protect their savings from being wasted?

Anyone who has a long investment horizon can say goodbye to the distorted world of interest rates.

Investors find the best ratio in the stock market.

After 15 years, even savers with poor timing were in the plus in the past.

A broad-based index fund like the MSCI ACWI distributes the money invested across all major economies.

The iShares MSCI ACWI ETF (WKN: A1JMDF) has already gained almost twelve percent in 2021.

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