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Is a building society savings contract a good idea? Only in the right combination!

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Is a building society savings contract a good idea? Only in the right combination!

In Germany, building society savings contracts are traditionally used as a secure method for accumulating equity for buying or building a property. But are building society savings contracts really as sensible as many repeatedly claim? The answer is a clear "It depends!" Especially when the building society savings contract is not considered in isolation, but rather as part of a comprehensive financing plan.

What is a building savings contract?

A building savings contract is a financial product that allows you to make regular payments into a contract over a fixed period in order to later obtain a favorable loan for the purchase or construction of a property. The building savings contract consists of two phases:

Savings phaseYou make regular payments into the contract until a certain sum is reached.

Loan phaseOnce the agreed building savings amount has been reached, you can take out a favorable loan to finance your property.

Why is a building savings contract alone not very useful?

In theory, a building society savings contract has many advantages: It offers planning security, guaranteed interest during the savings phase, and a low-interest loan later on. However, in practice, there are several obstacles that make many building society savings contracts less attractive:

Low interest rates: The interest rate on savings accounts is usually very low these days and often lower than inflation. This means your capital is losing real value.
Long run times: A building society savings contract typically takes many years to reach the required savings amount, which limits flexibility. This can be problematic if you urgently need equity for a property.
High sign-up fee: Signing a building society savings contract often involves high closing fees. These can significantly reduce the return and make the contract less attractive.
Only when the contract is "ready for allocation": The building society savings contract only becomes a loan when it is ready for allocation – that is, when you have made all the required payments. Until then, you have to wait, which can be inconvenient for many.

When does a building savings contract really make sense?

The true strength of a building society savings contract becomes apparent when it is integrated into a tailored financing plan. On its own, a building society savings contract is often unattractive for the reasons mentioned above. However, if you are already planning financing for the purchase or construction of a property, a building society savings contract can be a useful component of your financing concept.

How can the building society savings contract be incorporated into the financing?

Low-interest loan as a supplement to home financing: A building savings contract can be used as a kind of "financial reserve" to increase equity or to secure a lower interest rate for part of the long-term loan. If you contribute to the building savings contract during a period of low interest rates and later receive the loan amount ready for allocation, this component can help optimize your overall financing.

Combination with other financing models: In many cases, a building savings contract can be part of a complex financing model that combines various products – for example, with a classic annuity loan or a KfW loan. Here, the building savings contract provides a favorable financing option without requiring you to rely solely on it.

Tax advantages: If a building savings contract is used in conjunction with a housing loan, it can offer tax advantages. In certain cases, such as with Riester subsidies or specific government programs, the building savings contract can provide additional savings.

Conclusion: A building savings contract is not a panacea

A building society savings contract definitely has its place, but only if it is properly integrated into a financing plan. On its own, it doesn't offer the best conditions these days and should therefore only be taken out as part of a comprehensive and well-thought-out financing solution.

Therefore, if you are considering taking out a building savings contract, you should not do so in isolation. Rather, it is advisable to use the contract as one instrument within a larger financing package in order to benefit from the advantages of a low-interest loan and to put your property financing on a solid foundation.

Would you like to learn more about how to effectively integrate a building savings contract into your financing? Contact us today – we at Badent & Klemm are happy to provide you with independent and tailored advice to optimally design your financing strategy.