Austrians are notoriously risk-averse and have been big fans of savings accounts, but how do they invest?
All over the world, investors, bankers and financial experts are shrugging their shoulders. No one seems to know what the markets are up to, let alone where they are headed. Is this the calm before the storm? When will the ECB raise interest rates?
Who can tell us where to invest for our children or retirement? Most global citizens have encountered different financial systems in their lifetimes and each country follows a distinct financial culture. Austria’s is risk averse. Austrians are great savers and the wealthier among them traditionally invest in material goods, like real estate, precious metals, old timers, art, antiques… In 2013 only 3% of Austrians owned stocks.
Decades ago, back in the days of the schilling, Austria was the world champion of savings. Now a mere 6.6% of Austrians’ money is put in the proverbial Sparbuch savings account – half as much as in 2009. For an expat, residential nomad, or citizen of the world, Austria still offers interesting ways to park and invest money.
In Austria, a savings account will typically pay out between 0.01% and 2% annual interest, depending on the commitment period. As such low rates can’t keep up with inflation, many are opting out and deeming the time-honored piggy bank or mattress a better option.
However, savings accounts remain a real option, popular among the risk-averse, with products ranging from highly liquid, low-interest accounts for setting aside extra spending money to Bausparkassen (building society) accounts for parking larger sums with higher yields (up to 4%) over 5-10 years. The Bausparvertrag remains Austria’s most popular vehicle for savings.
At the moment, floating interest rates are generally more attractive for both loans and savings. While it’s uncertain how long interest rates will stay this low, some loan products allow switching to a fixed rate.
When state-subsidized premiums were discontinued in 2012, the popularity of Bausparer savings accounts dropped from 50% in 2011 to between 40% and 43% in 2012 and 2013, according to the mood barometer of the Gesellschaft für Konsumforschung, (GfK, Society for Consumer Research). Another reason is the low interest rates prescribed by the ECB’s quantitative easing – measures meant to stimulate the economy by incentivizing people to spend their money rather than let it slowly stagnate in a savings account.
Invest in what you know
As Austrians have liquidated their savings passbooks over the last decade, many have put their money into tangible assets. Enthusiasm for gold and real estate reached its zenith in 2012 and has ebbed significantly since, with investments in these falling by 8% and 7%, respectively.
But as demand for living space increases, investments in the local real estate market again become more interesting. The Austrian hobby of real estate investment may have caught on across Europe.
The Investment Market Update, Europe Q4 2015, published by the international real estate consultancy Cushman & Wakefield, showed a 25% increase from the previous quarter, giving rise to projections that the European real estate market could hit a new record in 2016 of over €240 billion.
Private investors may find it difficult to balance substantial real estate investment while retaining enough liquidity to diversify their portfolio. However, diversification – a key strategy of any long-term investment portfolio – requires Austrians to look beyond this small country’s borders. They often invest offshore and local financial consultants are aware of the tax and reporting requirements of such investments.
Since 2012, Austrians have also become more attracted to investment funds. As a foreign national investing here, however, it’s important to make sure you don’t run into tax issues. For example, the IRS can prohibit American citizens from owning or accessing certain kinds of Austrian Fonds, so make sure to get professional advice.
Will the kids be alright?
While parents outside of continental Europe begin saving for their children’s education from conception, Austrian parents can depend on its publicly financed educational institutions. Even private schools and universities are more affordable here than elsewhere. However, there are always other ways to support their children’s futures – whether for an apartment, world travel in their gap year, or higher education, there are plenty of options for parents with foresight.
No matter how you plan, long-run options can be a combination of reinvestment funds (thesaurierende Dachfonds) and dynamic stock components. The main thing is that, unless someone in your family has specific experience in finance, it pays to have your investment products managed by a regional expert and adjusted according to your family’s changing circumstances.
If you do invest in real estate or other tangible assets, make sure to check with a lawyer. Since August 2008, there has been no more gift or inheritance tax, however the tax reform in 2015/2016 has changed the equation again, making it vital to review the implications of inter-family asset transfers. Gifts up to €50,000 within one year, as well as certain kinds of property, are exempt.
All in all, Austrians diversify by collecting secure investments and saving with minimal risk.
When interest rates do return to more attractive levels, you might reconsider the Sparbuch option. Just don’t forget to secure a fixed interest rate on your loans.
Here are some questions to ask yourself before deciding how to save or invest. It’s not by any means a comprehesive list, but if you answer yes to these, it pays to look in to your bank’s options or contact a financial- planning expert.
Do you want a place to store money away from your checking account?
Can you afford to leave a large sum in an account for 5-10 years?
Do you have short-term goals that go beyond your monthly salary?
Can you put up 20%-50% of the required capital?
Do you have assets or a guarantor to provide collateral to the bank?
Do you have a strong argument as to why you need the funds?
Would you like to keep a pied-à-terre in Vienna or rent out an apartment if you move?
Are you looking to diversify your investment portfolio and have over €200,000 cash to spare?
Are you looking to have Vienna as your home base for the next 10 years and currently pay over €800 rent?
Do you have access to funds in different markets?
Are you looking to plan for financial independence in retirement?
Do you have existing investments in tangible assets?
Planning for the kids
Do you want to provide your children with a financial cushion for early adulthood?
Do you have assets over €50,000 that you would like to impart or gift to your children?
Are you interested in purchasing real estate to bequeath to your offspring?