German Households (Re-)Turn to Interest-Earning Assets
November 29, 2024
Deutsche Bank Research
German households have been increasingly investing in interest-earning assets, such as bonds and money market instruments, as traditional savings accounts offer meager returns in the current low-interest-rate environment.
According to data from the Bundesbank, German households held €826 billion in interest-earning assets at the end of September 2024, up from €730 billion a year earlier. This represents a 13% increase year-over-year.
The rise in interest-earning asset holdings has been driven by several factors:
- Low interest rates: Interest rates on savings accounts have been near zero for years, providing little incentive for households to hold cash.
- Inflation: Inflation has been rising in recent months, eroding the value of savings accounts held in cash.
- Financial awareness: German households have become increasingly financially savvy, recognizing the need to diversify their portfolios.
The shift towards interest-earning assets is expected to continue in the coming years as interest rates are projected to remain low and inflation is likely to persist.
Impact on the Economy
The increase in household holdings of interest-earning assets is having several positive impacts on the German economy:
- Increased lending: Banks can use the additional deposits to provide loans to businesses, which can boost economic growth.
- Reduced consumer spending: Households may reduce their spending on non-essential items to save for the future, leading to a decline in consumer price inflation.
- Increased financial resilience: Interest-earning assets provide a cushion against unexpected financial shocks, making households more financially resilient.
Implications for Investors
For investors, the shift towards interest-earning assets by German households suggests a few implications:
- Demand for bonds: As households seek out higher returns, demand for bonds may increase, potentially driving up bond prices and lowering yields.
- Increased competition for fixed-income assets: With more households investing in bonds, competition for fixed-income assets is likely to intensify, which could lead to higher yields on corporate bonds.
- Opportunities in alternative investments: Investors should consider alternative investment options that provide diversification and higher returns, such as exchange-traded funds (ETFs) and mutual funds.
Conclusion
The return of German households to interest-earning assets is a significant shift in savings behavior. This trend is driven by low interest rates, inflation, and increasing financial awareness. It has positive implications for the German economy and offers opportunities for investors to adjust their portfolios accordingly.
German households (re-)turn to interest-earning assets
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