How does a savings plan work?

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A savings plan consists of planning an investment. It does this by planning regular cash payments with the aim of reaching a certain amount of capital. This type of investment is primarily aimed at private savers and is offered either by a capital management company (CMC) or by a bank. In general, savings plans can be divided into two categories: the fund savings plans and the bank savings plans.

Savers who opt for a fund savings plan regularly pay in a fixed amount. Corresponding fund units are automatically purchased for this amount at the current price. As a result, the saver acquires fund units at an average price over the course of the year, which has been proven to be a lower-risk investment than a one-off purchase with the same sum of money. This form of saving goes hand in hand with all the features of an investment fund, for example with regard to costs (asset-based fees, as well as redemption, administration and performance fees) or the periodic return mechanism. Savings plans from €50 per month are widespread. This form of savings is particularly attractive due to the possibility of participating in the development of the stock markets with small amounts, even if it entails a higher risk compared to other savings plans. When you pay into a fund savings plan, you invest your own capital in the financial markets. That means you have a higher risk/opportunity profile.

The savers who choose a bank savings plan ensure that a fixed portion of the money in their account is regularly transferred to a savings account. One of the most common purposes of this savings plan is to raise money for retirement. Another purpose is mortgage lending. The bank savings plans are subject to the jurisdiction of bank deposits and are therefore considered to be very secure. However, they achieve rather low yields.

There are also other types of savings plans that depend, for example, on the composition of an investment portfolio (e.g. a stock savings plan or a sustainable savings plan). A variant of the fund savings plan that’s in high demand is the ETF savings plan. This functions as a ”passive” investment fund, i.e. it tracks a stock market index such as the DAX 30 or Xetra Gold. There’s also the certified savings plan that protects the investor from possible default by the administrator. The Riester savings plan was launched as an alternative form of a pension plan. Finally, there’s the Sparkasse bank loan agreement that the saver signs with the Sparkasse bank. As soon as the set quota is reached, the Sparkasse bank passes the mortgage loan on to the customer.

Compared to one-off investments or simple savings accounts, savings plans offer a personalised and long-term investment. If you open a savings plan, however, you should pay attention to the fees, because they can have a strong impact on returns.

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