Klaus Riester, Head of Retail Client Sales

The aim of the plan is zero liabilities growth.

Changing the way we think about money 

The share of liquid assets in the total financial assets of German savers has tripled since 2000. This means that the world’s champion savers are losing out because of the sustained low interest rate environment. High stocks are also a cause of concern for the banks. Changes are needed. 

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Many Germans still prefer to save in the conventional way. Savings accounts, current accounts, instant-access savings accounts and time deposit accounts remain very popular despite the low interest rate environment. This presents challenges for savers and banks because savers must come to terms with the fact that they are losing money in real terms on these deposits which pay the lowest interest rates. Ideally, banks can lend out the money, although they often fail to do so. This surplus of liabilities amounted to 115 billion euros for the Genossenschaftliche FinanzGruppe cooperative network at the end of 2020. This affects two-thirds of all Volksbanken and Raiffeisenbanken – or cooperative banks. “If the banks ‘park’ these funds at the central bank, this leads to a penalty interest of -0.5 percent,” says Klaus Riester, Member of the Executive Management at Union Investment Privatfonds GmbH and Head of Retail Client Sales. “While it is true that there are tax exemptions, these are insufficient in most cases.”  

Double fund portfolio to reduce surplus of liabilities 

“We have presented a strategic approach in response to this demand from both clients and banks. The plan demonstrates how banks are succeeding in offering clients an alternative to their conventional savings habits. At the same time, banks are avoiding penalty interest rates on high deposit banking,” Riester says. “The aim of the plan is zero liabilities growth.”  

To achieve this, new deposit money that would end up in savings accounts, instant-access savings accounts or other forms of non-interest bearing investments must be placed in investment funds. This way banks prevent the surplus of deposits from increasing. Despite low interest rates, investors have an opportunity to earn adequate returns and to avoid real asset losses. “The logic of this plan is to more effectively demonstrate to savers investment solutions that return a profit. The aim is to change the way we think about money,” Riester explains. 

The potential is great. “In overall terms, our partner banks could double their fund portfolios in this manner to more than 300 billion euros by 2025–2030," estimates Riester.

The logic of this plan is to more effectively demonstrate to savers investment solutions that return a profit. The aim is to change the way we think about money.

Klaus Riester

Head of Retail Client Sales

“We need a paradigm shift in bank management”

If banks set themselves this goal, it will also change their strategies. “Such a change process must be carried out in a very systematic manner. Initially, the individual sales measures are not so important. The main thing is for the bank to change its self-image, mindset and attitude, and to systematically focus sales measures toward achieving this goal,” says Riester.  

“We need a paradigm shift in bank management. If advisors have spent their entire professional life recommending interest-bearing products, it goes against a lifetime of habits for them now to advise their clients not to invest in those very products. That is why banks need to approach the change holistically, plan it from the top down, explain it to their employees and obtain their support in making the changes. To this end, we offer banks a range of support services, organise joint strategy workshops, take stock of the current situation and define the measures to be taken in collaboration with them. Many banks have recognised the challenge for themselves and are in the process of making the transition. However, this is not a sprint, but rather a marathon.” 

Each bank has its own challenges to face. “The formulation of strategies and goals as well as the planning approach, communication, the various instruments for sales management and ultimately the market cultivation measures are completely different in each case. Our aim is to provide each bank with the best possible support in achieving this goal. It is particularly important that banks plan and implement the strategic approach.”

Clients can benefit from this realignment

As interest rates are set to remain permanently low because of the Covid-19 crisis, savers can benefit from banks shifting their focus to devising profitable savings solutions. This can give a new boost to the evolution of saving – that is, saving with investment funds. “A classic entry-level product into the world of investment funds – especially for younger clients – is an investment savings plan. Instead of putting 25 euros a month into an instant-access savings account, this sum is placed in an investment fund that matches the individual’s risk appetite,” says Riester. In 2020, Union Investment managed more than three million traditional investment savings plans for the first time for savers who invest their savings in Volksbanken and Raiffeisenbanken (cooperative banks). This clearly represents an upward trend, presenting an opportunity for both banks and savers.  

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