How To Invest Money In Germany As A Foreigner [2023 Guide] (2024)

In times of high inflation and low interest rates, financial experts often warn of the ever-decreasing buying power of your savings. It is well-known that investing money, instead of solely saving it, is the only way to grow your finances today. So, how can you invest money in Germany as a foreigner? This guide will explain everything you need to know about different investment options, procedures, and aspects to consider if you wish to increase your money in Germany.

Can you invest in Germany as a foreigner?

The simple answer is yes, you can! However, there are limitations for US citizens.

Due to the USA’s international investment regulations, US citizens have limited investment options in Germany. The IRS (Internal Revenue Service) upholds strict regulations to prevent US taxpayers from avoiding taxes when investing internationally. International banks must report directly to the IRS when serving US citizens. Missing out on doing so, or any mistakes in the financial statements, are heavily penalized, targeting individuals and international banks alike. For that reason, most German banks do not offer their investment services to US citizens. If you are a US citizen looking to invest in Germany, you should talk to a financial expert about your options.

Is it a good idea to invest in Germany?

Absolutely! Germany has a strong and stable economy, a comprehensive legal framework, and a positive environment for investment overall.With the Frankfurt stock exchange, Germany is well positioned in the stock market as well.

When it comes to investments, time can be your biggest friend. The earlier you start, the better you will be able to reach your financial goals. We know many internationals who held off investing during their first years in Germany because they were unsure of how long they would stay. They lost valuable time to let their money grow. Jen being one of them. 🙈

What to consider before you invest while living in Germany?

As a foreigner, consider your present situation and plans for the future before investing your money while living in Germany. Doing so will help you determine which investment options are suitable for you.

How long do you plan on staying in Germany?

Are you in Germany for a one-year employment contract, or do you plan on staying long-term? If you don’t know the answer to the question yet, do not worry! You can start your investment journey by looking into short-term and flexible investments, like a savings account or ETFs. If you are planning on staying long-term or even considering retiring in Germany, you can additionally look into long-term commitments, like real estate or private pension. Please read our guide below for more details on private pension and an overview of the German pension system.

How much money can you invest?

While this is a question everyone should consider, it is all the more relevant for foreigners living in Germany.

Before considering investments, be sure to have an emergency fund (e.g., in a savings account), to cover possible costs such as an emergency flight to your home country, a broken fridge, etc..

You should carefully consider how much money you can invest, how flexibly you need to be able to access that money, and how much risk of losing that investment you are willing to take.

How much risk are you comfortable with?

Financial investments always come with a level of risk – and it is no secret that the riskier the investment, the higher the potential gains, yet the more severe the potential losses.

Investing money should make you feel good and confident about handling your financial independence and should not add a burden on your life. If your risk tolerance is rather low and you know that you would constantly worry about losing your savings, you should stay away from risky investments and pursue lower-risk alternatives. Those may come with fewer gains but more stability, safety, and peace of mind.

Where to invest your money in Germany?

Now that you have assessed your circ*mstances, where can you invest your money in Germany?

There are many investment options in Germany. Which ones are right for you depends on your financial flexibility, timeline, and willingness to take risks.

Different investment options in Germany are:

• Savings Accounts
• Securities Accounts
  • Stocks
  • ETFs
  • Bonds
• Digital assets (Crypto)
• Gold
• Real Estate

Investing in savings accounts in Germany

While savings accounts are not part of the traditional investment category, they are a popular, low-risk alternative to grow your savings slowly. Savings accounts are connected to a reference bank account (usually your checking account) to and from which you can transfer money. They help grow your savings with an out-of-sight, out-of-mind approach and fixed interest gains.

Germany has two kinds of savings accounts: Tagesgeldkonto (call money account) and Festgeldkonto (fixed deposit account). While call money accounts allow you to access your savings anytime, fixed deposit accounts hold your money for the contractual duration. Interest on fixed accounts is slightly higher.

How To Invest In Savings Accounts In Germany

You can open a savings account at almost any bank in Germany. Our guide, Best Savings Accounts In Germany, lists several banks with the most favorable conditions. It also details the process and requirements for opening an account. It is relatively easy to set up and an excellent way to save money in Germany while growing it at the same time.

What Are The Tax Regulations On Savings Accounts?

Profits on savings accounts are taxed at 25% capital gains tax (Kapitalertragsteuer) plus solidarity surcharge (5,5%) and church tax (around 8% to 9%) if you are a member of the church. You can file for a tax exemption order (Freistellungsauftrag) at your bank, which exempts taxes on gains up to 1.000 euros or 2.000 euros for joint accounts per year. Without an exemption order, taxes are automatically subtracted from your gains by your bank or broker.

Investing in securities accounts in Germany

Securities, like stocks, bonds, and ETFs, are what most people think of when discussing financial investments. Let’s look at each one individually.

Individual Stocks refer to a fraction of a business that you buy. Doing so makes you eligible for portions of the company’s profits, which are paid out as dividends. Stocks are bought and sold on the stock market. They are often regarded as a relatively risky investment, as the future and profitability of a company are impossible to foresee. Investing in the right company at the right time promises high profits thanks to dividends and an overall increase in the stocks’ value. However, investing in the wrong company at the wrong time may cost you all your savings.

Stocks are an attractive investment option for more experienced investors. But how can you invest money as a beginner or as a more risk-averse person? ETFs, or Exchange Traded Funds, are a great alternative and often get viewed as one of the best investment options these days.

ETFs are a bundle of multiple assets like stocks, bonds, and other securities. ETFs can consist of hundreds if not thousands of different stocks or bonds and thus are already widely diversified. They are traded at the stock exchange and can be bought and sold anytime, though financial channels, such as Finanztip, advise to have them run for a minimum of 15 years to balance out any losses (based on historical data).

Just like mutual funds, they are risk-balanced thanks to their diverse setup. Contrary to funds, they are passive and not actively managed by a fund manager. They run automatically by copying well-known indexes (e.g., the MSCI World or S&P 500), thus reducing fees. Overall, ETFs are very affordable. While stocks, especially for established companies, can be expensive, ETFs can be bought for as little as one euro.

Many banks offer ETF saving plans (ETF-Sparplan), which allow you to invest a sum of your choice each month. With a regular monthly investment, you will also benefit from compound interest through time. The minimum monthly contribution can be as little as 10 or 25 euros, which makes ETFs the optimal investment choice for students, beginners, or lower to middle-income individuals. If you are wondering where to invest your first 1.000 or even 10.000 euros, an ETF may be a suitable choice.

Bonds are the third investment option we would like to introduce you to. Bonds represent fixed-interest securities. In essence, bonds are loans given to a company or country by private investors. They are often used to fund extensive and costly projects. Companies and countries pay interest on the money lent by investors, who will thus receive regular interest payments on top of their payback. As with any loan, there is a risk of borrowers being unable to repay the loan. While it is impossible to avoid this risk entirely, it is essential to go through the creditworthiness and ranking of the bond giver.Generally, bonds are often referred to as low-risk, stable investments.

How To Invest In Securities Accounts In Germany

You must open a securities account with a bank or broker to invest in securities in Germany. To find the most appropriate options for internationals, please refer to our in-depth guide below.

What Are The Tax Regulations On Securities Accounts?

Like savings accounts, securities gains are subject to 25% capital gains tax, plus the solidarity surcharge (5,5%) and church tax (around 8% to 9%) where applicable. The so-called Freistellungsauftrag (tax exemption order), which allows you to save taxes on gains up to 1.000 euros (or 2.000 euros for joint accounts), can also be filed for securities. Please note that the allowance includes all of one person’s capital gains combined and is not granted per investment type.

Investing in digital assets (crypto) in Germany?

Digital assets are relatively new but have been prominent in the news as an example of extraordinary investment success.

The most well-known kind is cryptocurrency (e.g., Bitcoin), a means of payment that only exists virtually and is not issued or regulated by an authority. It intends to provide an alternative to traditional money, unaffected by inflation and thus crisis-stable. Cryptocurrencies have gained popularity in recent years, resulting in massive gains for early investors.

Despite newsworthy successes, cryptocurrency is considered a high-risk investment, and most financial experts do not recommend it to the general public. Their main arguments are high fluctuations and the rather unpredictable future of the cryptocurrency concept. No one can predict if crypto will turn out to be the future of finance or a fad. If it is the first, an investment today promises substantial gains; if it’s the latter, investors are bound to lose all their investments.

How to invest in digital assets in Germany

You can buy cryptocurrency at specific crypto stock markets, brokers, or your bank. You must open an account at the crypto trading platform of your choice and can purchase cryptocurrency via regular bank transfer, credit card, and sometimes even PayPal. Popular crypto brokers in Germany are Bison, Bitvavo, and Scalable Capital.

What Are The Tax Regulations On Digital Assets?

In Germany, cryptocurrency is defined as sonstige Wirtschaftsgüter (other economic goods) and thus not subject to capital gains tax. It also benefits from a one-year speculation time limit, which means that crypto coins are not subject to any tax if you hold them for at least 365 days before selling them. If you sell cryptocurrency sooner, potential gains are subject to a speculation tax (Einkommenssteuer auf private Veräußerungsgeschäfte), which equals your personal income tax rate based on your total taxable income. You do benefit from an exemption limit of 600 euros.

Investing in gold in Germany

Investing in gold is an entirely different type of investment, as it is usually not focused on profit but rather on stability and preservation of value in times of crisis. Gold has survived thousands of years without losing its appeal. In the past 30 years, the price of gold has more than sevenfold. It is easy to see why gold is often considered a safe investment choice. Interestingly enough, however, many financial experts do not encourage investing in gold.

Reasons against gold are diverse. Investing in gold is relatively expensive because gold sellers also intend to profit. Many sellers add between 6% and 20% to the actual cost when selling to you. Then there is the question of storing it. Keeping gold at home is not without risk, but depositing it at a bank involves fees that can be substantial over time.

Gold is inactive and does not yield any dividends or interest. You only profit if the price of gold has risen when you sell it. While the price of gold has gone up in recent years, that process was disrupted by heavy fluctuations. If you need to sell at the wrong moment, you may sell for less than you invested.

Overall, gold is most appealing to people who worry about a severe inflation crisis that threatens their savings’ buying power. While it diversifies your investment strategy, experts recommend investing no more than 10% of your assets in gold.

How To Invest In Gold In Germany

You can buy physical gold as coins or bullion from a trustworthy source, either at a bank or a reliable gold dealer. It is best to buy gold in person rather than online, as you have to pay upfront, which leaves you at a significant risk. Alternatively, you can invest in gold certificates, gold-related shares, or funds through your securities account.

What Are The Tax Regulations On Gold?

Like crypto, gold is considered other economic goods and thus not subject to capital gain tax. If you sell it within the first year after buying it, speculation tax applies for any gains exceeding a tax allowance of 600 euros. Speculation tax equals your personal income tax rate, which is based on your taxable income and can be up to 45%. If you sell gold after holding it for at least 365 days, you benefit from the same one-year speculation time limit that applies to cryptocurrency, which means that profits are tax-free.

Investing in real estate in Germany

Real estate investment in Germany is the final investment option of this guide. As real estate is a prominent aspect of our everyday lives, it feels more tangible and trustworthy to many, especially compared to securities.

There are two ways to invest in real estate, either directly or indirectly. Direct investments include buying physical property for yourself or for renting out. Indirect investments include investing in real estate-focused stocks, funds, or ETFs.

Direct investments require substantial equity and should be well thought through. Owning property in Germany is a long-term commitment. While it is common in countries like the US to buy and sell houses quite regularly, buying property in Germany is costly, bureaucratic, and time-consuming, and most Germans only do it once (unless they are real estate investors).

Buying a house or apartment in Germany has a lot of hidden costs; however, if you are in a good financial position, it can be a very good investment.

Many homeowners underestimate the long-term costs of loans, paperwork, maintenance, and property tax. Furthermore, regulations and requirements for homeowners are subject to change, which can lead to high unexpected costs in the future.

The infamous German Heizungsgesetz (heating regulation) is an example that caused a lot of concern among homeowners as it enforces the replacement of gas and oil heating with costly climate-friendly alternatives. This is an enormous financial burden to many, especially elderly homeowners. With climate change being a more prominent political focus, climate-friendly adjustments and requirements for new buildings will likely continue to increase the costs of owning property in Germany.

Renting out property is mainly attractive for the monthly rental payments you receive. You should consider, however, how time-consuming, bureaucratic, and labor-intensive renting out property in Germany can be. Also, please be aware that tenants have much more rights in Germany than in other countries. So if you are going to be a future landlord, familiarize yourself with the German tenant laws.

When buying property, most people invest all their assets, resulting in a singular investment portfolio prone to risk. While you can pause ETFs, access call money accounts, or sell stocks in times of crisis (e.g., when losing your job, in times of sickness, etc.), this is not as easily done with real estate. There also is an ever-increasing risk of damage from natural disasters. If you choose to buy property, ensure that it is adequately insured.

We are not trying to scare you away from a real estate investment but rather share the German perspective with you. If you would like to pursue investments in real estate, please do your due diligence and maybe even consult experts.

If you prefer investing in real estate indirectly with stocks, funds, and ETFs, you will be met with many options, though not all are advisable for private investors. For instance, a detailed article by Finanztip explains the difference between Open and Closed Real Estate Investment Funds and why they are not advisable for the general public. The article is in German, but you can easily translate it by right-clicking on the website and choosing “translate to” a language of your choice.

If you wish to invest in real estate as a private investor, you will come across Real Estate Investment Trusts, REITs for short. They refer to stocks from real estate companies that are not subject to trade or corporation tax, thus paying high dividends to investors. On the downside, as they are stocks focused solely on the real estate industry, they are also prone to high fluctuations.

How To Invest In Real Estate In Germany

If you wish to buy property, you should invest time to analyze your finances, get to know the German real estate market, and familiarize yourself with German laws and regulations to avoid unpleasant surprises. If you are looking for support you can consult with a financial expert, like Horbach Expats, to determine how much property you can afford. It is also essential to compare different loans and rationally decide whether you are ready and comfortable with such a costly and long-term investment. Our guide, Buying a house in Germany, shares more information on the process.

If you prefer investing in real estate via stocks, REITs, or ETFs, you can often do so with the same securities account that you use to invest in non-real estate stocks and ETFs.

What Are The Tax Regulations On Real Estate?

Profits from indirect investments are subject to 25% capital gains tax plus solidarity surcharge (5,5%) and church tax (around 8% to 9%) if you are a member of the church. Profits from selling real estate are tax-free if you have lived in the property for the past three years. If you rent the property out, profits from selling are tax-free if you hold them for ten years. Should you sell beforehand, profits are subject to the speculation tax, which again is your personal income tax rate.

That said, it is essential to know that owning property is also taxed. When buying real estate, you must pay between 3,5% and 6,5% property transfer tax (Grunderwerbsteuer) on the purchase price of your home. You are furthermore subject to an annual payment of property tax (Grundsteuer), which differs greatly depending on your property’s type, size, and location. Rental income is also subject to taxation based on your personal income tax rate.

What are the taxes on investments in Germany?

Taxes on investments in Germany differ depending on the type of investment. Capital gains from savings accounts or securities like stocks, bonds, and ETFs are subject to a 26,38% tax (25% capital gains tax + additional 5,5% solidarity surcharge) or 28,38% (25% capital gains tax + additional 5,5% solidarity surcharge + additional 8% or 9% church tax, if you are a member of the church). You can file for a tax exemption to exempt taxes on annual gains up to 1,000 euros for individuals or 2,000 euros for joint accounts directly at your bank or broker. With an exemption order, you only pay tax on any gains above that limit, which are then automatically subtracted from your payout. If you forget to enter an exemption order, you can claim those taxes back via your annual tax declaration.

If you invest in crypto or gold, you can benefit from tax advantages. Both are considered other economic goods and are thus not subject to capital gains tax. They further benefit from a one-year speculation time limit, meaning that any gains from selling cryptocurrencies or gold that have been in your possession for at least 365 days are tax-free. If you sell earlier, speculation tax applies on any gains above a tax allowance of 600 euros. Speculation tax equals your personal income tax rate, which is based on your taxable income and can be up to 45%.

Tax regulations on real estate differ depending on the type of investment. Indirect real estate investments via funds get taxed with capital gains tax.

For active investments, tax payments are due for buying and owning real estate. Selling property, on the other hand, opens the door to tax benefits. If you lived in the property for the least three years before selling it, all profits are tax free. If you buy real estate as an investment property to rent it out, you can sell it tax-free after a hold period of ten years. If you sell without fulfilling one of the two requirements, your profits get taxed with your personal income tax rate.

Should you seek advice from financial experts?

Investing in Germany, especially as a foreigner, can be complex, and if you are unsure or not as experienced yet in the world of investing, you can seek independent advice from financial experts. This is especially true for US citizens, who face difficulty investing in Germany due to strict international regulations by the IRS. Horbach Expats are an excellent source for guidance on your personal investment strategy.

They are a team of international certified independent financial advisors who focus on supporting international citizens living in Germany. They consult in English and seven other languages and are happy to craft a holistic financial plan for you and your current life circ*mstances. An initial financial plan usually costs 95 euros, but when selecting Simple Germany for the question ‘How did you find us?’, you will only pay 50 euros.

Conclusion

Investing in Germany enables you to grow your money in a trusted, stable, and well-regulated environment.Which type of investment is best for you and your life situation depends on your nationality, how flexible you would like to be able to access your invested money and your risk-averseness.

Savings Accounts, ETFs and bonds are a great starting point to build your investment portfolio and are suitable for beginners or lower- to middle-income investors. They are relatively safe and flexible.

Stocks are a riskier investment options and more attractive to higher-income individuals who can afford a higher level of risk in their investment choices.

Investing in real estate comes in different shapes. You can either buy physical real estate or invest in real estate-focused securities. Buying property is a costly long-term commitment and should be well thought through.

Which investment option is right for you depends on your experience level, financial and personal situation, and willingness to take risks. Given the system’s complexity, seeking advice from financial experts is a great option to develop a portfolio that fits your needs and ideas.

Disclaimer: Simple Germany or myself as an author do not provide investment advice or financial services. Please be aware that this article is intended to provide you with a brief overview of the possibilities to invest in Germany. The statements, comments, and other content contained in this article, even if individual issuers or financial instruments are mentioned, are not to be construed as investment advice and do not constitute, directly or indirectly, a recommendation or solicitation to buy, hold or sell any financial instrument or any advice relating thereto. It does not substitute any professional investment advice. You are responsible for your own risk if you decide to participate in any form of investment. Please note that no investment can guarantee a profit. Every investment in securities involves risks and can lead to a complete loss of your invested money.