Short answer
A savings plan buys shares of a fund with the same amount every month, fractions included. What decides the result is the long-run return, the years and the costs: 500 euro a month for 30 years at 7 percent ends at about 588,000 euro, and a yearly cost of 1 percent takes about a sixth of that away.ETF savings plans, the basics Germany
How does an ETF savings plan work in Germany?
The mechanics of the most common way people in Germany start investing. It explains; it does not pick a fund or a broker.| Yearly cost (TER) | After 30 years | Less than without costs |
|---|---|---|
| No costs | about 588,000 euro | – |
| 0.2 percent | about 567,000 euro | about 3.6 percent |
| 0.5 percent | about 536,000 euro | about 8.8 percent |
| 1 percent | about 490,000 euro | about 16.7 percent |
500 euro a month for 30 years at 7 percent a year before costs, before tax and inflation, paid at the start of each month.
What happens each month
On a fixed day the broker invests the amount you chose, usually from 25 or 50 euro, in the fund you chose. Because the amount is fixed, it buys more shares when prices are low and fewer when they are high. That is a consequence of saving regularly, not a source of extra return: with money available all at once, research has usually favoured investing it at once.
What it costs
A fund's yearly cost, the TER, is taken out of the fund itself, so it never appears as a charge. It compounds like the return does. On 500 euro a month for 30 years at 7 percent before costs, a TER of 0.2 percent leaves about 3.6 percent less at the end, and a cost of 1 percent about 16.7 percent less. Broker fees per execution come on top; many brokers charge none for savings plans.
Accumulating or distributing
A distributing fund pays its dividends out; an accumulating one reinvests them. Both are taxed: distributions when they are paid, and an accumulating fund through the Vorabpauschale each January, which is credited back when you sell. For an equity fund 30 percent of every gain is tax-free (the Teilfreistellung), and the rest is taxed at the Abgeltungsteuer.
The Freistellungsauftrag
The first 1,000 euro of investment income a year are tax-free for a single person, 2,000 euro for a jointly assessed couple. The bank only knows that if you give it a Freistellungsauftrag; without one it withholds tax from the first euro, and you can only get it back with a tax return. Split the amount across banks if you have several accounts.
The account
Fund shares are held in a securities account, the Depot. They are separate assets, not a deposit, so they are not lost if the broker fails. This page does not rank brokers or funds; compare costs, the funds offered as savings plans and the order execution yourself.