The savings book has had its day. Instead, stock savings plans are booming in the low interest rate period. What is behind it? And how do I invest my money with it? We explain what you should consider.
Due to low interest rates, savings books or call money accounts have hardly generated any income, so-called returns, for years. That’s why experts advise savers to invest their money in stocks or better equity funds. In some cases, yields of more than six percent a year – at least if you invest long-term.
A good option for beginners is a savings plan, with which you regularly invest a certain amount either in shares or in so-called index funds, or ETFs for short.
Share savings plan: the most important things at a glance
– With a savings plan you can regularly invest in stocks or funds, the money is automatically debited from your account.
– You don’t necessarily have to invest a large amount – at some direct banks you can start with just 25 euros a month.
– You can usually adjust your individual savings rate. If you don’t want to save in a month, you can suspend payment.
– To create a savings plan, you need a securities account. You can open that at direct banks on the Internet. This is usually cheaper than at branch banks.
– Pay attention to the costs: In addition to the deposit fees, there are usually percentage fees per monthly investment, which can quickly become significant. Compare the providers beforehand.
– Providers often advertise with campaign savings plans that are cheaper for a certain period of time. However, you should be careful when it comes to alluring offers.
– On online portals you can calculate how high your assets are likely to be after saving. However, you must enjoy the result with caution – because nobody can predict how share prices will develop.
How does a savings plan work?
With the help of a savings plan, you regularly invest a predetermined amount of money in an investment form. At a certain point in time, a fixed amount will be debited from your account. Types of investment can be shares, i.e. company shares; Bonds, ie private loans to companies; Real estate or raw materials such as gold or oil.
When saving shares, you invest your money continuously in a share or an equity fund. An example: If you invest 100 euros per month, you buy shares in a particular company for 100 euros each month. Depending on how high the price of a share is, you get more or less company shares for the 100 euros.
You can start with small amounts
Alternatively, you can use a stock savings plan Invest your money in equity funds too. The advantage: you spread your money over several company shares and thus reduce your risk of loss. A savings plan with an exchange-traded index fund called ETF is ideal for beginners. These special equity funds form one Stock index such as the Dax to.
The special thing about savings plans in stocks and equity funds: You do not have to save large amounts. With small amounts, you can build up considerable assets in the long term. That is partly due to Compound Interest Effect: The income attributable to an invested amount is also invested and generates a further return. In the long term, your investment amount can grow exponentially.
Many companies involve their shareholders, i.e. their owners, on the profit made. This so called dividend is in turn invested and increases the investment amount – without you having paid more. This reinforces the compound interest effect even more.
What are the advantages of a stock savings plan?
The main advantage of a savings plan is that you can benefit from stock gains with a relatively small amount of money. In contrast to a larger one-off investment, you can invest a small amount per month, or in a different time schedule, with a savings plan. With some direct banks you can start with an amount of 25 euros per month.
Another advantage of the savings plan: you remain flexible. If you can’t save once, you can usually suspend a payment. In your online depot, this is usually easy with a few clicks. Conversely, it is also possible with a savings plan to pay more than the originally set rate.
Saving small sums doesn’t hurt as much
So if you have more money left in a month, you can also save surpluses. You can use a savings plan to generate high income over a longer period of time thanks to the compound interest effect (see below).
When buying shares, however, it is not easy to find the perfect one Time of purchase make out. Savings plans can also help here. The reason for this is that you divide up your investment amount and invest piece by piece. This will reduce the risk of entering the stock market if the price is too high.
By the way: Regular savings with small amounts also have a psychological effect. Small sums are not as important as high sums, so they don’t hurt as much. At the end of the savings period, however, you have built up a substantial fortune. At the same time, you also discipline yourself. Because the money you invest with the help of a savings plan cannot be spent on anything else.
However, a stock savings plan also has a major disadvantage. Because: You don’t spread your risk very widely. After all, with a stock savings plan you only invest in individual company shares – possibly even only in shares of a single listed company.
If this company does poorly or is possibly involved in a scandal, the shares in this company may lose value. To prevent that from happening, you’d better go on Funds or ETFs put (see below). This spreads your risk more broadly – and savings plans in funds or ETFs are also possible.
What is the compound interest effect?
The interest paid on an amount invested is in turn invested at the same interest rate as the amount. So the total amount grows exponentially.
If you invest 50 euros a month and the annual interest, which is calculated on the month, is 6 percent, you have a credit of 619.86 euros at the end of the first year. 600 euros of this is your deposits, 19.86 euros is the interest. After another year, you saved 1,200 euros, plus more than 77.96 euros in compound interest. In this case, the effect is particularly pronounced after 21 years: Then the interest exceeds the amount invested: you saved EUR 12,600, but the total interest is almost EUR 12,700.
How do I set up a stock or ETF savings plan?
Creating a savings plan with a direct bank on the Internet is very easy. We show you in a few steps what is important:
- Insert one depot at. You can open this with a direct bank or an online broker. In contrast to branch banks, there are usually no fees for this. It is important to compare the conditions of the online providers for their savings plans. It’s not just the cost that counts. So it is also important which stocks or ETFs you can choose from for saving. With many providers you do not have the full selection. Sometimes providers also advertise with so-called action savings plans – then certain stocks or ETFs are cheaper. Sometimes, however, these promotions are only tempting offers where the costs increase after a few months (see below).
- If you want to invest in individual stocks, you should choose a savings plan provider from which it is possible Share fragments to acquire. An example: A share costs just 30 euros, but you only invest 25 euros, acquire a large part of the share, but not the whole share. If a dividend, i.e. part of the company’s profit, is paid out, you will only receive part of the dividend. With some providers it is not possible for you to buy fragments. Then the share purchase will not be carried out until you have invested enough money. You can usually buy fragments from ETFs.
- Pick stocks or funds you want to invest in. It is recommended your To spread risks widely and not just rely on individual values. This is made possible by ETFs that track a stock index.
- Lay your Savings rate and the temporal horizon. You have to be clear about how much money you want to invest and in what time rhythm. You can usually choose between a monthly, quarterly or half-yearly payment. You can usually change the savings rate if you notice that you want to save more or less. Now all you have to do is wait and let your money work for you.
What stocks and ETFs can I invest in with a savings plan?
It depends on the bank where you have your deposit and savings plan. Many savings plans offered by banks do not include the entire stock and ETF repertoire. With some providers, for example, you can only invest in company shares of the largest or most valuable listed groups in a country. You should therefore find out in advance which provider has the ETF you want in your savings plan.
Basically, however, the following applies: the more, and the broader you invest, the safer your investment is. For beginners in particular, it is therefore advisable to invest in ETFs that replicate a stock index like the Dax at low cost (see above).
How safe is a stock savings plan?
To answer this question, you first need to differentiate. A distinction is made between savings plans with which you invest in individual stocks and those with which you invest your money in equity funds, to which also Index funds (ETFs) counting.
Stock savings plans are riskier in comparison than stock fund savings plans. They are therefore less suitable for beginners. Savings plans with equity funds or ETFs that contain stocks whose price fluctuations balance each other out are better.
Imagine, for example, that you are organizing a party: So that you do not sit alone, it is best not to invite only a friend who may not be particularly reliable. Instead, you let many different friends and acquaintances know. The risk that everyone will cancel you at the same time is relatively low. There is a high chance that you will have a nice celebration – even if not all of them came.
Spread your risk with equity funds
This example can be applied to the purchase of shares: a savings plan in individual shares is not particularly secure. To keep the risk of losses as low as possible, you should spread your investment as widely as possible.
The best way to do this is with ETFs (“Exchange Traded Funds”). These are exchange-traded funds in which a computer algorithm replicates a stock index. That is why they are also called index funds.
A stock index shows how much certain stocks rise or fall. A well-known example is the German stock index (Dax), which tracks the performance of the 30 largest companies in Germany that are listed on the stock exchange.
What makes the most sense: a stock, fund or ETF savings plan?
How sensible a savings plan is depends on the type of investment you invest your money in. The three most common are:
- A Share savings plan usually harbors the greatest risk and is therefore not suitable for beginners. The reason: You invest your money in individual shares, that is, you buy shares in a company for a certain amount each month. However, if the price of a company share falls, meaning it loses value, you also lose the money you invested.
- A Fund savings plan is much less risky. After all, a fund is a kind of basket in which various securities lie that generate income for their investors. This can be stocks, bonds or real estate. If there are different securities in the basket, one speaks of a mixed fund. A fund that invests only in shares is an equity fund. In this case, your risk is widely spread and the likelihood that you will make losses is lower.
- A exchange traded fund or ETF is a special equity fund: Here, a computer algorithm replicates a stock index, for example the Dax, one to one. In contrast to “active” equity funds, in which a manager decides on the composition, such “passive” equity funds incur significantly lower costs. Studies also show that actively managed funds often lag behind ETF performance.
What are the costs of a savings plan?
There are different costs for a savings plan. You should pay attention to the following cost items:
- Deposit costs: Since you first have to open a custody account before you can create a savings plan, you should also keep these fees in mind. In contrast to branch banks, many online providers such as direct banks do not incur any costs for a custody account. A depot there can cost more than 20 euros a year.
- Execution costs: Fees are often incurred when buying shares or funds. These are so-called order fees. These costs arise when a stock trader makes a specific purchase for you – every time you pay money into your investment as part of the savings plan. This can be up to 2.5 percent of the monthly amount – so make sure that this fee is as low as possible.
- Administration fees: These are the costs that a fund company charges for offering a fund. In contrast to active funds, ETFs cost a lot less, since there is no need to pay a manager to control stock trading.
One tip: Sometimes providers also advertise with savings plans. For these, the costs are lower for a certain period, for example six months. But be careful: these are often only tempting offers. Once the period has expired, you then pay a significantly higher fee.
Below is a table of the best-known direct banks and their execution costs, as well as the minimum amount for a share savings plan:
|Direct bank||Order fee per savings rate|
|Minimum savings rate|
Please note: Possible special offers or extra costs (for example, for keeping a deposit) are not listed.
How much wealth can I build up with a savings plan?
It is not generally possible to say how much wealth you have built up at the end of the investment period. Wealth accumulation depends on many factors: your savings rate, how long you invest your money, the cost of the savings plan and custody account, and the choice of shares or funds that you save with a savings plan.
Basically, the longer you invest your money using a savings plan, the greater your wealth will be at the end of the savings. However, if you want to know how high your assets will be after investing before investing, use the interest or savings plan calculator on the Internet.
There you have your planned savings rate, the adopted annual Return and indicate the expected saving time. However, you must enjoy the result with caution. Because you cannot predict how stock prices – and ultimately your returns – will develop. Your saving behavior can also change over time.
When should I start investing my money in stocks or funds in a savings plan?
Basically, the earlier, the better. The reason for this is the compound interest effect (see above). The interest paid on an invested amount is invested together with the income. So your wealth increases without you having to invest more money.
In contrast to the one-time purchase of shares, when a savings plan is concluded, it is less important when the savings phase begins. The time of entry becomes less important because you invest a lot of small sums over a longer period instead of a large amount.