For years, Germans ignored negative interest rates.

They continued to put their money in accounts that earned little or no interest.

That changed drastically in the second half of last year.

While private households in Germany increased their bank deposits by more than 70 billion euros in the first six months, it was only 13.4 billion in the second half of the year.

In the third quarter, private households withdrew funds totaling 3.1 billion euros for the first time in 15 years.

The usually strong final quarter turned out to be well below average with a plus of 16.5 billion euros.

Deutsche Bank reports this in the latest issue of its Germany Monitor on private household finances.

Martin Hock

Editor in Business.

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One reason for the trend reversal may have been the restrictions imposed by the pandemic and later their easing, writes analyst Heike Mai.

Restricted consumption options may have initially contributed to the accumulation of deposits, but consumer spending had already picked up again in the second quarter.

However, the pandemic cannot fully explain the savings behavior.

Equity funds instead of checking accounts

Rather, savings have also shifted.

The so-called custody fees are more obvious, at the same time inflation has become an issue.

Less wealthy households are therefore likely to have saved or had less money left over at the end of the month.

In addition, a significantly higher number of Internet searches for the keyword "inflation" suggests that many people have thought about real losses in their investments.

This is reflected in the large sums that private households have invested in financial assets.

Overall, in 2021 these rose again by 52.1 billion euros above the peak value of the previous year.

A record sum of 104.6 billion euros flowed into investment funds in particular - more than twice as much as the previous largest inflow of 50.9 billion euros in 2000. Equity funds and mixed funds were particularly in demand, and the number of new fund savings plans was also high increased particularly sharply.

Many private investors also bought shares directly and invested 31.7 billion euros in them.

More home loans

Borrowing rose to a record high for the seventh time in a row at 76 billion euros net.

The outstanding loan volume at banks now amounts to 1.4 trillion euros, 84 percent of which are home loans.

These once again increased sharply by EUR 77.9 billion.

Since 2015, private households have been taking out larger and larger amounts of credit every year, and growth rates have risen from almost 2 to 7 percent.

On the other hand, the stock of consumer loans has fallen slightly.

The dynamic growth of the years before the pandemic had come to a complete standstill.

In addition to a lower demand thanks to higher savings, the limited consumption options would have played the decisive role.

More loans were taken out during the less constrained summer quarter.

The uncertainty caused by the pandemic is also likely to have caused restraint.

Further weakening expected this year

For 2022, Mai expects a further decline in deposit accumulation due to the shock from the Russian attack on Ukraine and the clouded prospects for a strong recovery as well as the outlook for inflation, but not another slump.

At the beginning of the year, deposit growth was at the long-term average, and on the other hand, the need for liquid assets could increase due to the uncertain geopolitical situation.

Interest rates are also likely to rise noticeably in the euro area.

The lion's share of savings will probably again flow into investment funds, life insurance or stocks.

The bond markets could also become interesting again due to rising yields.

However, overall growth is expected to be lower.

The volume of new housing construction loans is likely to be very high again in 2022, but well below the record level of the past year.

Rising house prices would no longer be compensated by falling interest rates on loans.

The obligation for banks to build up additional equity buffers is also likely to make real estate financing even more expensive.

In addition, an end to the house price cycle is expected in the medium term, since the supply shortage is easing and valuations are increasingly considered unattractive.