'Bausparen' savings plans - Germany

I am starting work with a new company in a couple of weeks and they will be paying me 'VL'. The finance team there are recommending I put it in a Bausparenkonto, but I'm not sure it makes sense.

I already have a good size deposit built up in the UK (now a little less good after the GBP depreciation) and anyway, I may not be here forever.

On those two points, would you recommend a Bausparen saving plan for expats?

Thankyouplease

Bob

Your receipt of "VL" which is on top of your salary (you have to pay tax on it) is dependent upon it going into a suitable account. Your current bank account doesnt satisfy this.

Typically the locals put it into a Bausparvertrag. One tends to top the VL up to some round figure. Bausparvetrag pays miserable interest. If you plan to use it as a house loan generally you are planning long in advance. You do not HAVE to use it for a house loan.
If you decide that Bausparen is not the place for you try asking what other forms of savings are suitable (I think that there is a 7-year rule somewhere).

If you really consider its too much trouble then tell them you dont want it. You employer will have difficulties to understand this.

Here is the Wikipedi reference to VL=Vermögenswirksame Leistung (in German).

VL you pay in for 6 years and leave 1 year fallow.Normally after 6 years you start another one.My latest comes up on the 01.01.2009.Just before the closing date of the 7 year ruling, all your money from the Finanzamt gets paid in.Something like €72 per year times that by 6.If however you close it down before the 7 years are up the Finanzamt takes a considerable chunk out of it.
A Bauspar is good if you are planning on building but you can also use the credit for something else.You get a very good interest rate on it.If you do not use the Bauspar Summe then you get a bonus on top.I have foind that you get a better return on VL Fonds.Ask at your bank

It's free money, no reason not to take it.

How do youmake out its free money? € 40 goes in to an account and you get € 18 back from your employer.Granted you make money on it but you are still putting in € 22 of your own money.

Bausparverträge aren't always that good. The money you pay in earns very low interest, much lower than you can get for a regular savings account. The theory is that when the savings period is over you can then combine the money you have saved with a loan at a low interest rate, however in my experience you can get a loan from a bank at a better interest rate than that from the Bauspar people. I would advise against them.

In addition to building new, Bauspar accounts can be used to buy an existing house or a condo, or renovate a place you already have. My husband had such savings and as a result we got quite a nice mortgage that suits us well. The banks couldn't match the interest and payment flexibility terms that we got last year. And after seven years when the account has matured, then the money can be used for anything. I would suggest that anyone planning to stay in Germany for more than just a few years should seriously consider taking one out.

The rules will be changing a bit at the end of this year. To really understand whether something like this would be good for you, go talk to a financial advisor or ask Starshollow. It doesn't cost anything except a little time to make sure you won't be missing out on something. I don't fully understand the changes that are coming, and haven't bothered to do any research since it doesn't apply to us. I do know that if the plan is started this year and at least one payment is made, then the old rules will still apply for the life of the account. Accounts opened after Jan 1 2009 will have new conditions.

edit: Some info in English on how Bausparen works.

no professional advisor will actually tell someone to put his VL into a Bausparvertrag. Not only are Bausparverträge in most - if not all cases - a bad investment, the amounts from VL are far too low to make this a serious investment choice. And if you opt - as I have seen every now and then - for a higher Bauspar-amount then would be the sum of all your VL investments, all that will happen is that the first year's contributions will simply be turned into commission for the agent/broker. Before you sign on anything, make sure that you understand fully how it works and what your intitial costs for the plan are.

There are good plans out there (if you are not an US citizen, that is) where you can put your VL contributions into an investment fund savings plan and these make much more sense... and such is also the recommendation of German consumer protection agency STIFTUNG WARENTEST (through the subsidiary FINANZTEST).

Cheerio

hello
Can someone enlight me with this Bausparen mortgage offer model please?
Starshallow i dont wanna abuse your time or knowledge but maybe u can shed some light ..

I finally found the porperty and im about to buy , all is ready to go but the mortgage .. im looking for the most convinient mortgages offer with a few institutions -brokers before i sign.., one of them,( the fastest ) tries to convince me to get the "Ideal bausparen Vertrag ", he really pushes on that is a the best model for me ..

I just cant seem to get my head around it and my german friend hasnt it clear either, surely i wont sign into this but maybe id like to see if is really convinient for my case as the broker says.

here is the case :
proprrty is 166K (with neben kosten)
im giving a deposit of 100K
basicaly i only need 66-70 k mortgage and sonething simple and hopefully flexible where i can pay the mortgage or some of it before ..Im a resident here but not necessarily will stay in Germany my whole life...

why is he offering something like a Bausparen and what is this double the amout of the mortgage thing means..?
for example why if im asking for only 66-70K the Bausparen contract shows the 140K zwischen kredit?
do i really need this?
I know i sound confused (i am ) but since is the first offer i got id like to consider it if its a good one.

thanks

Dinkita: the easiest answer for you, why he is pushing this, comes up, when you ask him to fully disclose the costs of the Bausparer and how much he earns from this...
Your mortgage of 60-70 k is at the lower minimum of what any decent advisor would accept, because all he can usually earn here is around 1% of the mortgage and since the time and hussle are the same for 70 k mortgage like for 150 k mortgages, it isn't really such a hot deal for him. This is something you have to understand right from the beginning.

On the other hand, a BAUSPAR contract is awarded somewhere between 5% at the lowest level of commission up to 14% % of the amount - so, just do the math and you see how really< big the incentive is to sell you on such a plan from the point of view of the advisor. This you have to bear in mind when trying to understand such offers...

RE-financing with a Bausparer is not a really good idea in my perspective - you would be better off putting some money away each month for a speedier repayment every couple of years.

Basically, what you need to get from whoever recommends this to you is a comparison of costs and benefits of the modell he recommends to you with other options, including for instance "Bau-RIESTER" if you are eligible for it or other forms of savings and repayment over time. These have to include full disclosure of all costs and then you can mae an educted decision. The point that he is pushing you so much while you have not understood it yet at all is not a good sign to me....

Here is a link to FINANZTEST with latest ratings on Bausparer institutions: http://www.test.de/themen/bauen-finanzieren/test/-Bausparen/1734494/1734494/1739867/
From there you find a lot of links to helpful tools like check-list for Bausparer and mortgage financing in general etc.
You could also check in the internet where the closest branch of "verbraucherschutz" is located near by you. Just drop in, bring your quotes and they will help you to understand if this good and recommendable for you or not....

All in all, I would opt against this if I had to decide and rather invest in other options to keep you more flexible and with less costs initially...

Cheerio

Thank you Starshollow , you are exelent on this matters...

exactly my sentiments with the "pushy feeling" unfortunately is very frustrating for me at the moment since the 2 brokers im using are "pushing " me to get (much) more money i need to borrow, is quite an unconfortable feeling to be honest , they say i need liquidity bla bla but i have a good job and work ahead and i dont like to borrow more than i need cause of personal preference
i hate the feeling of owing money so the less the best for me...

thanks for the tips! i will use them , it looks like going directly to the banks seems like a better option in my case ..
cheerio back and thanks
dinkita

well, if you go directly to INTERHYP (one of the best online broker I know) you should get a wide variety of options without the being-pushed experience. You should also look into KFW mortages as a share of total mortgage for new "owner" of property, some good options are available.

While I also caution some of my own clients not to spend their last dime on a property and then face hard times if something unexpected comes up in a year or so requiring money locked into the property/mortgage, I do not know enough about your case to judge if the advice to take up more money and have some cash reserves is in the same good spirit or rather because higher mortgages bring higher commissions...

Should you not get along well with INTERHYP, fell free to contact me, I am happy to help you - though I would need, quite frankly, to charge an extra fee due to the smallness of the mortgage - but at least you would know that upfront and can rely on me not pushing you in any direction. But try INTERHYP first if you will...

Cheerio

As Mik points out,with a VL you get a "Sparzulage" from the State of 18% a year on top of the first 400 euros in your investment fund ( ie 72 euros)(if your taxable income is not higher than 17,900 euros)but only 9% (42,30 euros) with a Bausparvertrag-as Starshollow of course rightly points out,Bauspar commission is interesting --but not for you!

Hi,

I am a Brit with 32 years local property and stock market investing experience. I would strongly advise against the Bausparvertrag and also against the pushy reps pushing the ideal financing model. On the VL best is to pay into a stock equity fund (if it suits your risk profile).

On the mortgage, I would be willing to assist. The banks are more likely to be more expensive than an online request. I am fully bilingual in both languages and can certainly be of assistance.

JB