The column “René wants profitability”: Don't be fooled by the saving interest rates, otherwise you will be giving away money in the long term

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Many savers are celebrating because interest rates have returned after years. Financial professional Clemens Schömann-Finck believes that there is no real reason to be happy. If investors fall back into old patterns, it will cost them a lot of money.

Before there is an outcry in the comments: Of course it is good that interest rates are back and savings are increasing again. It's also good for the economy that the years of zero interest rates are over. Because the avalanche of money caused many undesirable events.

But for me another aspect is important. As problematic as the European Central Bank's (ECB) monetary policy was, it at least led savers to look for alternatives. If they wanted their money to grow, they had to discover what was possible beyond savings accounts, daily savings accounts, and fixed-term deposits. Many did: according to figures from the German Stock Exchange Institute, the number of shareholders increased between 2013 and 2023 by almost 40 percent, to 12.3 million, after years of decline. The number of shareholders increased, especially among young people: it doubled.

Don't fall back into old patterns!

Will this development continue? I hope so, but I have my doubts. Thanks to the return of interest, the money increases again in the savings account. This looks really attractive on paper. Banks announce new daily money customers with offers of over three percent. Fixed-term deposits contain almost four percent. You can sit back and fall back into old patterns. Why venture into the stock market when your money is safe in your savings account and can grow without risk?

But this idea is a fallacy. The savings amount increases with each interest payment. But that does not mean that true wealth creation occurs. Because inflation must be taken into account. Only if the interest rate is higher than the inflation rate will money really be worth more. In fact, prices are rising faster than interest rates. The bill is increasing, but I can still afford less. A return equal to the inflation rate with interest can hardly be achieved. And if it is higher than that, it is not real support for wealth creation.

About the author Clemens Schömann-Finck

Clemens Schömann-Finck is a financial expert and is behind the YouTube channel “René wants profitability”. In his FOCUS Online column he highlights current issues related to the stock market and investing. He subscribe to his newsletter here for more financial information.

To demonstrate with an example: the inflation rate in Germany is around three percent. As mentioned, fixed deposit accounts offer around four percent. This means that after deducting inflation, the real interest rate is one percent. With such performance, it takes almost 70 years for assets to double.

Don't trust interest

Therefore: Don't let the zero interest period end in your head! Be happy to receive something for the money you have in your account for emergencies and foreseeable expenses. But we must look for alternatives for long-term wealth creation. Contrary to all prejudices, with the right strategy in the stock market it is possible to obtain good returns with low risk. Some experts even say that the risk is more in a theoretical range: a widely diversified investment in stocks of many companies in many sectors; and countries has survived all crises so far. It may take some time for losses to be recovered. But in the past no investor has had to wait more than 13 years to implement a strategy of this type. With a long-term investment horizon, there is not much to fear in the stock market. You just have to have the courage to endure the temporary setbacks that keep coming.

However, you will be rewarded with a return that will go a long way toward building real wealth. The global stock market, as measured by the MSCI World Index, which includes the shares of about 1,500 companies, has risen an average of 8.4 percent annually since 1988. Again assuming an inflation rate of three percent, the real return is 5.4 percent. This means nothing other than that the money invested doubles every 13 years. As a reminder: in the fixed deposit example above, it was 70 years. To be clear with specific figures: 10,000 euros in fixed-term deposits become about 12,200 euros after 20 years, in the stock market they become about 28,600 euros.

The good: With the right investment strategy, investing in the stock market is not only less risky than you often think, but also easier. It is not necessary to buy 1,500 individual shares if you want to participate in the performance of the MSCI World. An ETF fund based on this index is sufficient. You can then use a savings plan to pay a fixed rate every month, laying the foundation for building real wealth. Even if the savings account looks attractive again, don't succumb to the temptation of interest. Otherwise, you will be wasting money in the long run.

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Many savers are celebrating because interest rates have returned after years. Financial professional Clemens Schömann-Finck believes that there is no real reason to be happy. If investors fall back into old patterns, it will cost them a lot of money.

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