Where should we invest our savings?

April 2015

Save when times are good to ease the burden during harder times: In light of the low interest rates currently seen in many European countries for classic investment products such as savings accounts, call accounts or fixed term deposit accounts, this only seems to apply to a limited extent. It is virtually impossible to make a profit these days. With interest on savings in the tenth of a percent range, investors have to stand by and watch how inflation is eating away at their savings bit by bit. More than usual, many investors are looking around for alternative forms of investment, such as real estate, gold or shares. Depending on country of origin, the various financial services are rated differently.   

However, people in Germany, Spain, France, the UK and the US are unanimously agreed on one point: the most appealing investment prospect is in their own home. Bricks and mortar are in pole position on the list of investments in all five countries at a time of low interest rates. But the degree of enthusiasm varies. These are the latest findings of the GfK Investment Barometer, for which the GfK Verein surveyed in excess of about 5,000 private financial decision-makers in four European countries and the USA in October and November 2014. Among other aspects, correspondents rated the appeal of a series of financial products and savings possibilities.  

Germans’ dream investment: Their own home

As the saying goes, beauty is in the eye of the beholder and this applies also to financial investment. The full extent of the disparity between country ratings shows the degree to which various nationalities in Europe and the USA rate individual financial products differently. Interestingly, the gap is widest for the best-rated product: Their own home. While in Germany, three out of four Germans are of the view that investing in their own home is an appealing or very appealing proposition, the figure for France is just 37%, which represents a difference of 38 percentage points. In Spain, around two thirds of correspondents rated this form of investment positively, whereas the corresponding figures for the UK and the USA were 57% and 58% respectively. The above-average enthusiasm of Germans for a home of their own is not just associated with low interest on savings. People in other countries have also been affected by this. In actual fact, at 53% (2013), the rate of home ownership in Germany is lower than in other countries. This factor, coupled with the current low interest on housing loans of just above 2% is evidently leading German consumers to look more favorably on investing in a home of their own than is the case elsewhere.

Brits and Americans: fans of company pensions

The disparity is just as great in the opinions expressed on company pensions. British and American respondents gave the highest ratings, with more than one in two British and virtually every second American financial decision-maker rating staff pension funds, superannuation funds or direct insurances as attractive. Conversely, at only 15%, the French rating in this context was extremely low.

Savings accounts and call accounts received the lowest rating from Germans. Given the record low level of interest rates, only one in ten consumers currently are displaying any enthusiasm for a savings account and just one in five correspondents expressed a positive view of call accounts. However, these products obtained the highest ratings in the UK, with 45% of British respondents of the opinion that savings accounts are an attractive investment proposition and 47% expressive a positive view of call accounts.

Securities: French frown on speculation

Investors in Europe and the USA also differ considerably in their ratings for equity-linked life assurances. The maximum discrepancy in this regards was 32 percentage points. Presumably, the differences can be explained by the fact that this type of investment carries an increased inherent risk-reward ratio as it is linked to unit shares. The Americans are the least risk-averse, with 41% regarding equity-linked life assurance as an attractive form of investment. In France, too, at 30%, this is rated as a very attractive investment. The reason for this is likely due to tax advantages of life assurances in France. The Spanish are least interested in this form of capital investment. Barely one in ten rated this type of life assurance as attractive. In neighboring France, investors are just as cautious about the potential opportunities offered by securities. Just one in ten French respondents rated shares as a good opportunity for increasing their wealth. By way of comparison, in the USA, nearly one in three correspondents expressed an interest in this form of investment. The result is a difference of 21 percentage points between France and the USA.

Equity funds, savings bonds and fixed term deposits: the French remain skeptical

The range of ratings for equity funds and savings bonds is just as wide. At its broadest, the discrepancy reached 21 percentage points as well. These products are viewed most favorably by Americans. One in four American respondents expressed the view that they were a worthwhile investment. French savers proved to be the most skeptical. When it comes to investing in equity funds or savings bonds, a mere 4% and 5% respectively claimed they would be prepared to do this. These products came bottom of the list of attractive investments. Even the comparatively safe fixed term deposit account was hardly rated higher by the French.  Just under one in ten rated a financial investment which guarantees monthly or quarterly access depending on the type of contract as a good deal. In contrast, one in four Spaniards rated fixed term deposit accounts as attractive. It is apparent that, in the wake of the turbulence on the financial markets, security, rather than the return, is what counts. The British, American and German ratings come somewhere between these two extremes.

Piggy bank and safety deposit box: top of the league for Brits and Americans

Anyone wanting to opt for complete security and give up on receiving any return on investment may well have considered using a good old piggy bank to stash money. Keeping savings at home or putting them in a safety deposit box is popular in the Anglophone world above all. Some 30% of British and American respondents would be prepared to put their money to one side without earning interest on it. In France, Germany and Spain, only around half as many financial decision-makers give this option any consideration. Conversely, correspondents were unanimous on the subject of gold and fixed interest bonds, where the maximum discrepancy range was just 11 percentage points and 10 percentage points respectively. The Germans, in particular, rated gold as a superb investment prospect, with one in three finding it attractive. In Spain, 28% of savers shared this opinion, while in France and the USA, one in four investors had flirted with the idea of buying gold. In the UK, this form of investment was rated as attractive by one in five of the correspondents surveyed.

By contrast, fewer respondents said they would invest their savings in fixed interest bonds. Debentures, bonds and similar products were given the highest ratings in the USA, and these products obtained the worst ratings in France.

German savers: security before returns

Germans are not quite as skeptical about fixed interest securities as their French neighbours, with 13% of them finding this form of investment attractive.  This relatively high number is hardly surprising, as these securities are considered a safe form of investment. This is an important factor for Germans. They continue to rate lower risk above returns. Of great interest to Germans are investments such as their own home, which as previously mentioned lies in pole position. Following this are products such as work pensions and building loan contracts. Gold also has a good reputation, with one in three Germans finding it an attractive proposition. However, compared to 2011, these forms of investment and for that matter, most of the other financial products surveyed, have lost some of their former allure. Call accounts, savings accounts and fixed term accounts have declined the most in popularity. Whereas in 2011, one in four Germans surveyed still regarded a savings account as attractive, today, the figure is just one in ten. In comparison with the findings in 2011, call and savings accounts dropped back a total of 14 percentage points and 12 percentage points respectively.  This is attributable to interest rate development. In 2011, the ECB raised the baseline interest rate to 1.5% and meanwhile, at almost zero, the fall in the interest rate has caused a corresponding decline in fixed term and call account investments.

Shares and investment funds up slightly

Although Germans tend to generally be risk-averse, shares and investment funds were the only potential investments to gain a higher rating for appeal. While in 2011 just 8% of respondents rated share certificates as attractive, this view is currently shared by 17%. Growth for investment funds is slightly lower at just at 3 percentage points (2014: 17%).

It remains to be seen whether the increased allure of shares and investment funds really will be reflected in German investment behavior. When it comes to financial investments, the experts tend to recommend a change of strategy away from low interest bearing products to higher yield products.  However, this also increases the risk of losing money. Ultimately, investors will have to decide for themselves which mix of investments fits their own particular situation best.  The basis for this decision is a sound knowledge of the advantages and disadvantages of financial products. As the American banker and former CEO of Citicorp, Walter Bigelow Wriston, so succinctly put it: “Information about money has become almost as important as money itself.”

 Source: GfK Verein Investment barometer, October/November 2014

If you have any queries please contact Sandra Lades or Claudia Gaspar, e-mail: hello@nim.org.