The current Inflation rate in Germany is 10%. What that means is the 1000 euros you have in your bank account will only get you 900 Euros worth of products next year. And the only way to escape inflation is to invest your money. But then, when you search on Google for the best investment options in Germany, you are bombarded with dozens of them.

And knowing where to put our money with the best possible returns can be a bit tricky. So in this blog, I will list down the main investment options available in Germany, irrespective of whether you are investing for a short-term vacation or for retirement. To make it easier for you, I will sort them from less risky but less profitable to riskier but more profitable options. So let's get started.

1. Bank Savings Account or Sparkonto

Keeping the money in the bank is the safest bet and the one that takes the least effort to maintain. You open an account with a bank and then put money in it and let it grow based on the interest rate provided by the bank.

But there is a catch. It offers one of the lowest interest rates, as low as 0.1%, and hence the least returns for your money.

But apart from all these, it still remains a popular investment option in Germany due to something called deposit protection. Your money is insured with 100,000 Euros per person and account by law. It is as safe as it can get. Also, the money is available immediately if you need to access it. Now there are two main types of savings accounts in Germany. An instant access savings account (Tagesgeldkonto) lets you earn more interest on your deposit than the regular savings account.

Still, the rates are very low to make a considerable return, at the moment, less than 0.5%. But this is still an excellent way to separate some money from a regular account where you manage all your daily expenses. The second one, a fixed deposit, lets you put money in an account for a fixed period at a higher but fixed interest rate. You can get around a 1-2% interest rate at most banks if you invest for a few years. And the longer the term, the better the interest rate.

2. Home loan savings contract (Bau-Spar Vertrag)

If you are planning to buy a home or real estate property in the future, an option that you could consider is a home loan contract or Bau-Spar Vertrag. This is a kind of special savings contract that combines a savings plan with a home loan.

The concept is simple and involves two phases, the savings phase and the allocation phase. During the savings phase, you put money into an account for a certain agreed period and interest rate. And at the end of the period, you can receive a house loan at a favorable interest rate, agreed upon at the start of the contract, along with the money you already saved.

This is the allocation phase. The advantage is that you are protected against fluctuations in the market and a probable increase in future interest rates. Still, the low interest rates for home loans nowadays make this option less attractive. Even if you plan to buy a home in the future, you will be better off putting your money in other places.

3. Private pension plan

Germany has a mandatory pension scheme in which everyone employed has to contribute to public retirement insurance. The amount is deducted from your salary and provides you with a pension which comes to around 70% of your salary when you retire.

The catch here is that the money is deposited into a shared pool and not into a specific account in your name. Private Pension Plans help you to escape this uncertainty associated with Government schemes. This scheme allows you to put a certain amount of money every month into a personalized savings plan.

You can then get your money back as a pension starting at the age of 62. But remember that this option is only worth considering if you intend to stay in Germany for the long term.

4. Life Insurance Plans (Lebensversicherung)

The important thing to be aware of is that there are two types of life insurance. Kapitallebensversicherung and Risikolebensversicherung. But the core concept is simple for both. If the policy owner dies during the term of his policy, his family gets the insured amount, compensating for the lack of income.

But the difference between the two is that Risikolebensversicherung focuses on protection for survivors, and the money is only paid back if the insurer dies during the term. It is particularly suitable if you have children or if real estate loans are to be covered. Kapitallebensversicherung or Capital-Life insurance combines a retirement plan with survivor protection. A share of the money saved is used to finance life insurance and is usually more expensive than Risikolebensversicherung. Money will be paid back either if the policy owner dies during the term or when the insured period expires.

5. Real Estate (Immobilien)

Real estate prices in Germany have risen rapidly in recent years.

Simply put real estate market is a great investment option if you can afford it. The prices for existing properties are at record levels. The interest rates for mortgage lending couldn't be better, with some banks offering loans with rates as low as 1%. Although recently, the rates are on the higher end.

6. Bonds (Anlagepapiere)

Bonds are considered a more secure investment option where companies or states borrow money in exchange for securities. Ideally, you act as a bank providing a loan and receive an interest in return.

The risk is that the state or companies could go bankrupt. Since this is a less probable scenario, the risk associated with bonds is less. But then the interest rates and the final returns are also less attractive. You can expect to get an average 5% return on government bonds. This interest is fixed in advance and is usually paid out annually, and you get your money back at the end of the term.

7. Investing in the stock market

Stock market investment will continue to be the most popular investment option because of the high returns in the long term. If you want to make a considerable profit and let the money work for you, you cannot avoid the option of investing in the stock market. Stocks or Aktien are stakes in the respective company, letting you own a part of it. Here you are ideally betting on the company's future prospects in the hope that it will grow and start making profits so you can earn a part of it. Other than individual stocks, you have the option to also invest in funds.

A fund is a collective investment where money is pooled and invested in stocks.

You can think of it as a company that collects all the investors' money and buy shares with it. Another popular option when it comes to funds is an exchange-traded fund or ETF. ETF is a fund that follows a stock market index as a whole instead of a single stock or company.

8. Cryptocurrency (Kryptowährung)

Cryptocurrencies are the virtual currency on the internet and digital means of payment based on encryption technologies such as blockchains or digital signatures.

The investment scheme is simple, you buy the cryptocurrency through a trading platform and sell it when the value increases. In Germany, crypto is treated as a private asset and comes with income tax and no capital gains tax if your total profits exceed €600 per year.

The critical thing to note here is that these are still very early stages for cryptocurrencies, and the market is highly volatile to even minor events. So only consider investing in crypto with the money you are ready to lose.

Every option has its benefits and drawbacks. It’s for you to decide which is the best option for you based on your current financial situation and goals. If you want to grow your money and protect it from inflation, you can watch this video to learn how to invest in the stock market with scalable capital.

Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. It is important to do your own analysis before making any investment.

Top 8 Investment Options for Expats in Germany