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Incremental savings: Investments with compound interest

Summary

Incremental saving is a special form of fixed-term deposit. Such a financial investment tempts with rising interest rates every year and is a worthwhile alternative to the classic savings book. As secure as a savings account Small savers keep coming […]

Incremental saving is a special form of fixed-term deposit. Such a financial investment tempts with rising interest rates every year and is a worthwhile alternative to the classic savings book.

As secure as a savings account

Small savers keep coming back to the conservative accusation classics in turbulent economic times. It doesn’t have to be the low-interest savings book: Anyone who has an amount that they will not need urgently in the coming years will find a slightly more profitable alternative in incremental savings. This is a fixed-term deposit in which you park a contribution X over a period Y at the respective bank. It is not possible to increase the amount during the term – in such a case you would have to conclude a second incremental savings contract.

Usually, the period of such a financial investment is four to five years and thus in the classic fixed-term deposit area. The highlight: within this period, the interest rate increases annually. In the first year there is usually the below-average savings deposit rate, in the last year it is 4 to 4.5 percent. Growing savings plans usually make the biggest jump in interest rates in the last year in order to keep the investor in line for as long as possible.

Recommended for smaller amounts

As with overnight money and the like, market conditions have an influence on the interest rate staggered. The latter, however, is firmly agreed, so it can neither decrease nor increase during the term of the contract. Nevertheless, there can be significant differences from bank to bank, so that the comparison pays off. The average annual return is around 2.3 percent over a period of five years. If, on the other hand, the saver quits after four years, the return falls to a meager 1.78 percent. In view of this, incremental saving is only a worthwhile option if the amount invested can be dispensed with over a longer period of time. Investing higher sums is therefore not advisable, since fixed-term deposits open up better returns here.