Whether it's an instant-access account or a savings certificate, an ETF or a structured note: there are many alternatives when it comes to investing your money. We look at five product categories and examine their advantages and disadvantages.
1) Instant-access savings (Tagesgeld)
If you ask Germans about their preferred forms of investment, instant-access savings usually rank near the top of the list. The advantages are obvious: instant-access savings remain available at short notice and are highly flexible. There are no price fluctuations. That gives instant-access savings a certain security. But in return, investors have to accept considerable disadvantages when it comes to returns. Despite a still-high key deposit rate at the ECB of 3.75 percent, in mid-July national banks paid on average just 1.69 percent interest per year on instant-access savings, according to a survey by the consumer portal Verivox. At savings banks (Sparkassen), the average interest rate was even lower, at just 0.62 percent per year.
2) Fixed-term deposits and savings certificates
Since the interest-rate turnaround, fixed-term deposits and savings certificates have become even more sought-after than instant-access savings. This is shown, for example, by figures from Barkow Consulting on net inflows from the third quarter of 2022 to the first quarter of 2024. According to these, instant-access savings recorded an increase of €84 billion, far less than fixed-term deposits (+€247 billion) or savings certificates (+€128 billion). With fixed-term deposits and savings certificates, the capital is tied up for a longer period, so it isn't flexibly available day by day. In return, there are slight advantages in return compared with instant-access savings. For example, according to Verivox, in mid-July the average annual interest on nationally available two-year fixed-term deposit offers was 2.79 percent.
Even though you have to accept higher risks when investing: on the equity markets in particular, the potential returns have been considerably greater in the past. Over the past 20 years, the average annual return of the global equity index MSCI ACWI, measured in euros and including dividends, was 7.96 percent (as at 30 June 2024).
3) ETFs
Exchange Traded Funds (ETFs) are now among the most popular products for tapping into the return opportunities of the capital markets – whether in the equity, bond or money market. The assets invested in ETFs in Europe grew from €438 billion at the end of 2014 to around 1.9 trillion US dollars by June 2024. ETFs track a stock-market index and replicate a particular market or a particular market segment. One of their advantages is their low cost. ETFs can therefore be an efficient tool for investing, provided you can bear the risk of investing in the capital market. That said: even between products tracking well-known stock-market indices there are certainly differences in costs and in performance that investors should pay attention to. The product category has also become extremely diverse. This is making the choice increasingly difficult.
4) Traditional funds
While ETFs follow their market or market segment as closely as possible, both up and down, traditional actively managed funds aim to beat the market's performance with a specific selection of securities. At first that sounds like an advantage. But it isn't necessarily: the costs of traditional funds are usually far higher than those of ETFs. That weighs on the outcome for investors. What's more, the promise to beat the market is mostly not kept: according to a study published by S&P Global in April, over a ten-year period 85 percent of active funds investing in German equities were unable to outperform a corresponding index. For European equities the figure was 92 percent, and for globally investing funds it was as high as 98 percent.
5) Structured notes (certificates)
For a long time they had dropped off most investors' radar, because many had already burned their fingers on them: for many years the product category of structured notes suffered from the collapse of the US investment bank Lehman Brothers in 2008. The trust of many investors was shattered, since according to estimates German investors alone had lost up to a billion euros on the structured financial products of a Dutch Lehman subsidiary.
In the meantime, the advertising drum for structured notes is being beaten vigorously again. But advantages are hard to spot, especially for private investors – on the contrary: with these products, great caution is called for because of the sometimes immense burden of costs and their high complexity. Structured notes are debt securities whose performance depends on the performance of an underlying reference asset. Whether a bonus is promised if a certain price threshold is not reached, or repayment guarantees are meant to apply under specific conditions: structured notes are highly speculative.
Conclusion: Anyone who wants to "park" money in the short term retains the necessary flexibility with instant-access savings or comparable products. quirion's interest account currently offers 2.75 percent annual interest (as at July 2024). A clever alternative to instant-access savings: the Cash Invest Portfolio, a special combination of money-market ETFs*.
Anyone who wants to build wealth over the long term should not simply leave the return opportunities of the equity markets untapped. You make the most efficient use of them with ETFs. Broad, global diversification is advisable here. To optimise the balance between return opportunities and risks, quirion's global ETF portfolio is diversified according to scientific criteria. It contains over 8,000 stocks from more than 70 countries. Because a pure equity investment isn't suitable for every investment horizon and every risk appetite, quirion mixes in bonds across the various strategies on offer, depending on the client's risk profile. This can dampen the price fluctuations.
Find out more about the global ETF portfolio here.
* The target return is variable and depends on market developments. As at 31 July 2024, the weighted yield to maturity of the financial instruments in the portfolio was 3.82% p.a. Past performance is not a reliable indicator of future results.
