Rock-bottom rates convert German savers to spending

Sun Feb 23, 2014 6:07am EST
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By Michelle Martin

BERLIN (Reuters) - After diligently setting aside his earnings for years, Sebastian decided last year it was time to splurge.

With interest rates at record lows, the 36-year-old took out two loans and bought a three-bedroom flat in a leafy Berlin suburb for 228,000 euros.

"I don't think it's ever been as cheap as it is now," the IT specialist said. He is paying interest rates of just 2.15 and 2.40 percent on 5- and 10-year loans totaling 130,000 euros ($178,300).

Sebastian, who asked that his last name not be used, is one of a growing number of Germans who are suppressing their inclination to save and, instead, shelling out - on everything from property to home renovations and holidays.

Last year, with unions securing strong wage hikes, employment at record levels and interest rates on bank deposits delivering next-to-no return, private households in Europe's largest economy saved a smaller proportion of their income than at any time since 2001.

The latest statistics from Eurostat, the European Union's statistics agency, show German households still save a higher proportion of their earnings than nearly all of their European counterparts.

But the gap has narrowed. The savings ratio in Germany, currently at 10 percent, has fallen since 2008. In some other European countries like Luxembourg and the United Kingdom households were putting aside more of their income in 2012 than in 2008.

According to the GfK market research group, the propensity to save in Germany is at its lowest level since reunification in 1990.   Continued...

General view of the characteristic Frankfurt skyline with its banking towers, January 16, 2012. REUTERS/Kai Pfaffenbach