Many millions of people in Germany have a home savings contract. You too? There were just over 25 million contracts in 2020. But that does not mean that these contracts are always worthwhile. There are certain situations in which a home savings contract is a sensible solution – and others in which other contracts have better interest rates or are cheaper or more flexible.
There are also big differences between the tariffs of building societies. A comparison of home equity savings contracts from different providers is therefore worthwhile.
What is a building savings contract?
The basic idea of building savings is simple and ingenious. All savers pay into one pot. As soon as enough money has been raised, the building society can issue the money as a loan to the first savers. Since all savers continue to pay diligently, everyone can gradually build, and faster than if everyone were just saving for themselves.
Nowadays this is done via an elaborate system in which the building societies calculate exactly in advance which contracts will be paid out and what fresh money will come in again.
To make this work, two contracts are combined: a savings plan and a home loan. In the savings phase, the interest rate is usually lower than usual on the market. Although there are closing and administration costs, the interest on the building society loan is usually somewhat cheaper than the mortgage interest that banks offer you at the time the contract is concluded.
First, the savings amount is determined. It corresponds to the amount that the saver wants to invest in his property. According to the Association of Private Building Societies, the average home savings sum for new contracts in 2020 was 56,000 euros. When buying or building an average property, the home savings contract only covers part of the total financing.
What is the process for a building savings contract?
First of all, the customer has to save up part of the home savings sum, usually 30 to 50 percent. After a certain time – for example, after seven or ten years – the contract is “ready for allocation”. This means that the saver can access the mortgage loan. He may then spend this money for so-called residential purposes, as stipulated in the Building Societies Act ( § 1 Para. 3 BauSparkG ).
The repayment of the home savings loan then also runs over several years. With many contracts, the building society customer can choose the period over which he would like to repay the loan. The following applies: the faster the repayment is made, the lower the loan interest is usually. In other words: The advertised interest rate is usually only available with very quick repayment.
However, when allocating a contract, the saver does not necessarily have to opt for the loan. He can also only apply for the payment of his home savings account. Then the contract ends.
There is also a third option: the saver can simply continue to save after the allocation. The possible building loan will then become smaller and smaller over time, but at the same time, the credit will continue to earn interest. This is an interesting option for savers, especially in the case of old contracts with good interest rates. However, the building society has a right to termination ten years after the allocation.
What are the costs of a home savings contract?
There are costs associated with a home savings contract, usually a closing fee and account management fees. The closing costs are generally between 1 and 1.6 percent of the home savings sum – with a home savings sum of 50,000 euros, at least 500 euros are due. In addition, you usually pay annual costs for the account of up to 24 euros per year.