Building society savings contract (Bausparvertrag)

The Bausparvertrag (home savings contract) is a typically German financial product that combines saving and an entitlement to a loan.

How it works:

Phase 1 – savings phase (7–10 years):

• You save 40–50% of the contract sum
• Interest: currently 0.01–0.25% (very low!)
• Monthly savings rate: typically €100–300
• Capital-forming benefits (€40/month from the employer) can be added

Phase 2 – allocation:

• Once the minimum balance is reached and the evaluation score is right: allocation
• You CAN now draw the loan (but don't have to)

Phase 3 – loan phase:

• You receive a low-interest home savings loan for the rest of the contract sum
• Interest rate: FIXED when the contract is signed (an advantage when rates rise!)
• Use: buying property, renovation, modernisation

Advantages:

✅ Interest rate certainty: you know TODAY what the loan will cost in 10 years
✅ Subsidies: housing construction bonus (€70/year), employee savings allowance (€43/year), Wohn-Riester

Disadvantages:

❌ Extremely low savings interest (0.01–0.25% vs. 2–3% for overnight money)
❌ Arrangement fee: 1–1.6% of the contract sum
❌ Inflexible: money is tied up
❌ If you never buy a property: worse than overnight money + ETF