The ECB’s low interest rates and the low capital requirements of the banks are hardly enough for German savers. Quite the opposite: The inflation rate is now higher than the interest rate, in fact, the money in the bank is thus continuously less.
As there are fewer and fewer return opportunities for investments in Germany, and interest rates for overnight and overnight money are at historically low levels, the attractiveness of investing abroad is increasing. Here different economic conditions – refinancing requirements, inflation and economic development and future market expectations – may lead to significantly lower interest rates.
But not all offers that promise high profits for the private investor, are really worthwhile. In addition, legal pitfalls threaten by nationally divergent legal regulations.
Foreign countries are not foreign
The choice of the country makes a decisive contribution to the level of risk. For example, fixed and overnight money accounts within the EU are protected by deposit insurance. This means that the investment is insured up to a value of 100,000 euros and you get the money even in the event of insolvency of the bank. In some cases, banks also offer protection through a fund, which also covers larger sums.
However, there is one limitation with regard to deposit insurance: as the respective state intervenes when the bank goes bankrupt, this is only guaranteed as long as a state is solvent. If the country is insolvent as well, the saver will end up empty-handed. So it pays to consider the creditworthiness of the state before investing. Rating agencies such as Standard & Poor’s, Fitch or Moody’s provide information on a regular basis.
Caution should be exercised when investing outside the EU: some countries do not offer comparable hedging.
Taxation of capital gains
In addition, taxes that are levied on capital gains also differ significantly. Thanks to some unfavorable bilateral double taxation agreements, it will prevent the reduction of withholding taxes – the tax due abroad. However, only eight EU countries levy withholding taxes. In ten EU countries, withholding taxes on interest income are generally not available, and in ten other states the agreement takes effect and reduces the tax to zero percent.
In Germany, capital gains tax of 25 percent is due.
Daily and fixed-term money abroad
Opening a daily or fixed-term account in the EU is very easy. In most cases, the application can be completed online and only requires identification via the PostIdent procedure. Some banks now also offer video identification. Combined with your own checking account, you will benefit from attractive interest rates within a few days and possibly even a special opening offer.
While you can also access the daily allowance account up-to-date abroad, the fixed-term deposit is for an agreed period at the bank. The saver has no access to the money during this time, attracting higher interest rates than the call money.
What makes this type of investment so attractive to other EU countries is the European deposit insurance, which intervenes in the event of bankruptcy and ensures that the investor gets his money back. There are different models:
- In the case of foreign banks that have a subsidiary in Germany, the German deposit insurance scheme will apply in the event of insolvency.
- Accordingly, the state is involved. If he is unable to pay at the same time, the only thing the saver can hope for is that the EU will help.
- Even in states where the euro was not introduced, but which are part of the federation of states, you can possibly lead an account in euros. This option should be used to avoid exchange rate losses.
But not only EU countries have deposit insurance. Norway z. For example, with a hedge of 200,000 euros per capita, the US is even around 230,000 euros.
In any case one should compare different offers in different countries before graduation.
Unlike the low-risk investment in a daily or time deposit account, the foreign stock market is not protected by deposit insurance. In addition, the investment requires a considerable amount of expertise in order to realistically assess the development of the foreign market.
It is also important to note the legal situation of stock trading abroad. For example, profits from share transactions in Switzerland are not subject to general withholding tax, which is charged on a flat-rate basis to bank accounts, and there are no equivalent transaction costs in the form of withholding tax. Nevertheless, a report must be made to the tax office in order to avoid tax evasion.
Alternatively, you can also invest abroad via the German stock market. Thus, some active and passive funds offer portfolios from different global markets. Those who love the risk can also participate in speculation in emerging and developing countries. The same applies to investments in commodities or derivatives trading in foreign markets.
The risk of foreign currencies
While investments within the EU are not at risk of foreign currency exchange rate fluctuations, they may reduce profits on investments outside the EU or, in the worst case, even lead to losses. However, these can be stated as tax-deductible in the tax return.
In addition to currency fluctuations, transaction fees charged by banks for currency conversion pose a risk.
Conversely, the foreign currency also offers profit potential if the euro rises relative to the currency of the investment.
The most widespread are the Swiss franc, Norwegian krone, Swedish krona, US dollar, South African rand or British pound, although other currencies may promise attractive returns.
Interest rate portals abroad
Most recently, the talk is of private investment brokers such as weltsparen.de or savedo.de, which offer their customers investments in countries such as Bulgaria, Italy, Poland, the Czech Republic, Portugal and Sweden. According to self-reports, the two competitors have each transferred more than 100,000 customers and already some billion euros abroad.
It remains a private investor usually denied to open in another country an account that pays higher interest. The private providers circumvent the ban. A German settlement bank takes over the transfer of the investment amount to the foreign bank.
Both the deposit and payout are in euros, which eliminates the risk of currency – at least as long as the bank does not go bankrupt: then the exchange rate of the corresponding day is valid and the refund is made in the national currency.
However, these investments are a risk. One example is the Bulgarian Fibank, which currently offers attractive terms for investors. If the bankruptcy during the investment time, the investor struck a rich profit. This also applies if the bank slips into insolvency, but Bulgaria is in a position to pay the compensation.
However, if this is not the case, there is only hope that the EU will provide sufficient funds for savers to receive compensation. However, there is no guarantee for this. Such deals are not without risk, banks are closed again and again – last two banks in Estonia and Latvia, which are said to have violated, among other things, the European law on money laundering.
Opportunities and risks of investing abroad
The investment abroad offers partially better returns than a comparable offer in Germany. The reason for this is the ratio of interest rate, inflation rate and competition and tax laws, which in some cases have a more favorable effect in other countries.
For example, some banks in other EU countries have deliberately identified German savers as potential customers, advertise with German-speaking customer service, higher interest rates and no fees. Due to the lack of currency risk and the deposit insurance is an investment in fixed or overnight money within the EU thus probably interesting for many German retail investors.
As with all investments, the same applies to investing abroad: it is best to risk diversification. Although the overnight money promises slightly higher interest rates abroad than a comparable offer in Germany, the investment may be further optimized by securities, funds or real estate. How the portfolio is composed depends on personal risk preferences.
Investing abroad can be lucrative. However, as there are risks in many places, such as tax rates and deposit insurance, it is important to obtain comprehensive information before going to a foreign bank and to question the creditworthiness of the state. If this can be answered positively for the EU country, then at least a daily or fixed-term account hardly stands in the way.
By contrast, investments in securities or funds as well as investments in foreign currencies are risky. This beginner should keep their fingers off, because experts recommend for this necessarily specialist knowledge of the market and warn against exchange rate fluctuations, which can lead to total losses in the worst case.