Savings account or ETF? What the numbers since 2003 really show

For every start month since Dec 2003 we simulated a monthly plan: the same amount each month, either into an instant-access savings account (Tagesgeld) or into the DAX or the MSCI World. Then we compare what each had grown to at the end of the period.

5 years (215 start months): the DAX plan beat the savings account in 87% of 5-year periods, the MSCI World plan in 86% of 5-year periods. Typical return per year (median): savings account 0.3%, DAX 7.7%, MSCI World 9.3%.

10 years (155 start months): the DAX plan beat the savings account in every 10-year period, the MSCI World plan in every 10-year period. Typical return per year (median): savings account 0.2%, DAX 8.2%, MSCI World 9.3%.

15 years (95 start months): the DAX plan beat the savings account in every 15-year period, the MSCI World plan in every 15-year period. Typical return per year (median): savings account 0.2%, DAX 7.4%, MSCI World 9.2%.

20 years (35 start months): the DAX plan beat the savings account in every 20-year period, the MSCI World plan in every 20-year period. Typical return per year (median): savings account 0.3%, DAX 8.7%, MSCI World 9.0%.

The longer the period, the clearer the picture. Over five years there were still stretches where the savings account came out ahead. Most of those periods ended in 2009, 2010 and 2011. From ten years on, the stock plan was ahead in every single period. The reason is compound interest: a gap of a few percent a year grows into a large distance over the years.

Since Dec 2003, the average rate on overnight deposits was 0.6% a year. Prices rose by 2.1% a year over the same period. From Jun 2016 to Jan 2023 there was practically no interest at all for 80 months. The result: a monthly plan into the savings account lost purchasing power in every 10-year period, typically 1.1% a year. In those cases you ended up with more euros in the account, but they bought less than the money you paid in.

An example: saving €100 a month since Oct 2016 means €12,000 paid in. To keep its purchasing power, the account would have had to grow to €14,159. The savings account reached €12,183. Across all 10-year periods, the DAX plan typically returned, after inflation, 6.4% a year, the MSCI World 7.4%.

Stocks are not simply "better". The higher return only comes because you have to sit through losses along the way. The largest falls since Dec 2003:

DAX: -52.4% from Dec 2007 to Feb 2009, back to the old level in May 2013.

MSCI World: -50.7% from May 2007 to Feb 2009, back to the old level in Dec 2013.

Over five years, a DAX plan ended with less money than was paid in 11% of the time, the MSCI World 13%. Even in the example since Oct 2016, the DAX plan was 18.1% below the money paid in at one point (Mar 2020). Anyone forced to sell right then makes the loss real. Why diversification helps and where it stops helping is covered in risk and diversification. What happens if you buy right before a crash is shown in investing at an all-time high.

A savings account is not a bad product, it just has a different job. It is right for money you need at any time or in the foreseeable future:

Emergency fund. For a broken washing machine, a car repair or a job change. Germany's consumer advice centre (Verbraucherzentrale) suggests two to three months' pay as a rule of thumb. With an unsteady income, plan for more.

Planned spending in the next few years. Driving licence, moving, studies, a car. Over five years, the DAX plan trailed the savings account in 13% of 5-year periods. If the money must be there on a fixed date, that risk is too big.

If swings keep you up at night. A plan you sell in a panic during a crash is worse than a savings account.

By the way: the Bundesbank figure is an average over all overnight deposits, including current accounts that pay almost nothing. Comparing offers usually gets you clearly more. As a thought experiment we used the higher of the average and the ECB deposit rate: in the example that would have been €13,139 instead of €12,183. To match the DAX plan in the example, the savings account would have needed 9.6 percentage points a year above the average, for the MSCI World 11.3.

Most people do not need an either-or, but an order:

1. Emergency fund into the savings account. Only once it is in place do you move on.

2. Money with a fixed date stays safe. What you need in the next few years does not belong in stocks.

3. The rest long term into a broad ETF. With a monthly plan you do not have to pick a moment. What it can add up to over the years, you can check in the savings plan calculator.

That way you stay calm when something breaks, and your long-term money can sit through a crash instead of being sold. How an investment in a single stock would have turned out in the past is shown by the what-if calculator. This is not investment advice.

Balances on savings and current accounts in the EU are protected by law up to €100,000 per person and bank. If the bank fails, the deposit guarantee scheme pays the money back. In Germany this is set out in Section 8 of the Deposit Guarantee Act (EinSiG), based on EU Directive 2014/49/EU. If you have more, spread it over several banks. With banks from other EU countries, that country's scheme applies.

ETF units are not deposits and are not covered by this protection. They do not need it in the same way: the fund's assets are held as separate assets and still belong to investors if the fund company or the broker fails. That does not protect against falling prices, though. Safety from insolvency is not the same as safety from swings.