With normal bank accounts in Germany providing abysmally low interest rate (sometimes nil) investors have started looking for other higher interest paying low risk investment instruments. Tagesgeld konto or overnight money market deposit account provides a safe (low risk) and high interest earning instrument provided by banks and financial institutions in Germany.
What is a Tagesgeldkonto?
The German word Tagesgeldkonto which when roughly translated in English means Day money account. However, Tagesgeld is equivalent to the financial instrument such as Money market fund, Call Money, Overnight money deposit, Money-at-call, Day money, Day Deposit, Daily money or other such names depending on the country you come from.
This is an instant access savings account where the bank calculates the interest to be paid on daily basis on the money deposit. This interest is added and credited periodically (monthly, quarterly or annually) back into the money market account.
Unlike the standard saving account (Sparkonto), the tagesgeld konto allows you to access your account at any time without a fixed wait period. This is because the interest is calculated on the daily balance maintained in the Tagesgeld account, a partial or a complete withdrawal of money can be made at any time. Such withdrawal does not lead to any penalty or loss of interest earned till that period.
However, the bank does not guarantee interest rate for a long term. Usually Tagesgeld accounts only have guaranteed interest rate for 3 to 6 months and sometimes to a maximum of 12 months.
Advantages and disadvantages of overnight money market deposit (Tagesgeldkonto)
In recent years it has become really attractive for many investors to invest a capital in higher interest-bearing deposit accounts such as overnight money market deposit account or fixed term deposit accounts. This is mainly because of the higher interest rate in comparison to the relatively low risk provided by both these deposit accounts. In order to fully evaluate which of these options are best suited for your needs you must consider the advantages and disadvantages of the overnight money market deposit account.
Advantages or benefits of an overnight money market deposit account.
- High overnight interest rate compared to normal checking account or current account.
- High Safety and low risk since the deposit up to a limit of 250,000€ are usually insured.
- High liquidity of money allowing withdrawal of money at any time compared to normal savings account or fixed term deposit account.
- Withdrawal of money without requirement for giving a notice period unlike normal savings account.
- No penalty of premature withdrawal like fixed term deposit account.
- Account opening and maintenance is always free of charge, unlike security deposit brokering account of some savings account.
- 100% online banking through internet banking. Also possible to do through a bank.
Disadvantages of an overnight money market deposit account
- Fluctuating interest rate with no long-term interest rate guarantee. Since the interest-rate provided by the money market accounts depend on the overnight interest rate set by the banks, these interest rates may vary depending on the interest-rate set by the central bank. Therefore the money market deposit accounts do not guarantee an interest-rate for a longer term more than one year and mostly guarantees interest-rate for 3 to 6 months.
- It can be used as a payment account like the checking account since you cannot make payments to a third party or receive funds from a third-party into your overnight money market deposit account.
Factors when choosing an overnight money market deposit account
It is always important to take into consideration the terms and conditions including the advantages and offers provided by each overnight money market deposit account providers.
Below we list some basic information and the factors to be considered when opening an overnight money market deposit account in Germany.
1. Select the best overnight money market account provider.
You can find a comparison between different overnight money market providers here on this website keeping it can be noted that the highest interest rates are mostly provided by online banks money market account provider.
2. Check for special conditions.
Some providers in order to lure new customers provide higher rate when opening an account. Some may provide high interest rate if the deposit is maintained for a particular time or for a minimum amount. Some provide only till a particular amount of deposit and any money invested above the limit may earn lower interest rate. Be sure to check for these conditions before you deposit. Sometimes you can also make sure you avail these offers provided by the providers which benefit you.
3. Frequency of interest credited
To make use of compounding of your deposit, ensure to select the deposit which adds interest amount more frequently. A bank which credits the interest earned monthly will earn you better compounded returns than a bank which credits interest quarterly or yearly.
4. Deposit insurance on the Tagesgeld deposits
Check if the bank which provides the money market deposit has Deposit insurance, and if so to what extend is your deposit insured. It is important that your deposits are covered to 100% to protect your investment in case of any bankruptcy. Some banks have deposit protection up to €100,000 others have more than €250,000 insured per customer of the bank.