What is a savings plan?

A savings plan is by definition a way to invest fixed amounts regularly in certain financial products such as ETFs, funds or shares. The agreement with a provider also enables investors to build wealth continuously, even with smaller amounts.

So a savings plan is ideal for investors who want to invest smaller amounts monthly, for example, in order to benefit from the performance of various asset classes in the long term. You now already know what a savings plan is by definition. But how does a savings plan work and how can you set one up? What are the benefits and risks of a savings plan and who is it suitable for? You'll find all of that in this guide.

• Definition: A savings plan lets you invest fixed amounts regularly (e.g. monthly) in investment products such as securities (ETFs, funds, shares, etc.) in order to build wealth step by step.

• How it works: Savings plans use fixed savings rates, automatic withdrawals (standing orders) and the cost-average effect to balance out price fluctuations and optimise the average price.

• Examples of savings plans: Common savings plans include ETF savings plans, fund savings plans, bank savings plans, Riester plans and share savings plans.

• Popular option: Index funds are particularly attractive for long-term savings plans as they offer broad diversification and potentially high returns.

How does a savings plan work?

A savings plan is an agreement between a bank and an investor. It works by having the investor regularly invest a fixed amount in selected investment products such as ETFs, funds or shares. This method uses fixed savings rates to continuously build wealth over time and smooth out price fluctuations.

Here’s how it works in detail:

• Regular investments: An investor contributes a set amount at fixed intervals within a savings plan, e.g. monthly, annually or quarterly.

• Automatic withdrawal: The agreed savings amount is automatically debited from the bank account.

• Cost-average effect: By investing the same amount each time, more is bought when prices are low and less when prices are high.

• Performance and reinvestment: Returns such as dividends or interest can be reinvested within the savings plan.

• Flexibility and adaptability: Investors can adjust the savings rate and intervals to match changes in their financial situation.

The way a savings plan works also depends on the time horizon. Short-term savings plans (one to three years) focus on quickly building capital with low risk, often through bank savings plans. Medium-term savings plans (three to ten years) balance risk and return by investing in mixed funds or selected equity funds. Long-term savings plans (ten years or more) are particularly suited to building wealth and retirement planning. Here, index funds offer an interesting option as they can provide broad diversification and high returns over long periods.

You should align your choice of savings plan with your financial goals and desired investment horizon.

Did you know? The difference between a savings plan and a lump-sum investment: While a savings plan builds wealth by investing a fixed amount monthly or quarterly, a lump-sum investment involves investing a larger amount in one go to grow your assets in a particular investment product.

What types of savings plans are there?

There are different types of savings plans, each supporting various investment strategies and goals. Here we introduce the most common types and explain what makes each savings plan unique. Each one offers individual advantages and can be tailored to personal investment goals and risk profiles.

ETF savings plan

An ETF savings plan regularly invests in exchange-traded funds (ETFs), which track an index such as the MSCI World. ETF savings plans are popular due to their low costs and broad diversification. They allow you to participate in the performance of large markets with small amounts and are especially suited to long-term investment goals.

Fund savings plan

Fund savings plans invest in professionally managed investment funds. The funds may include various asset classes such as shares, bonds or property. With a fund savings plan, you benefit from the expertise of fund managers and have a flexible solution for different risk profiles and investment objectives.

Share savings plan

A share savings plan allows regular investments in individual shares or a portfolio of shares. What makes this savings plan special: You can invest directly in companies that interest you. Instead of making a one-off purchase, a savings plan buys shares monthly.

Bank savings plan

Bank savings plans are conservative savings plans that offer fixed interest and are based on savings accounts. These plans are particularly secure because the capital invested is not exposed to market fluctuations. They’re ideal for investors who prefer a predictable return on their money.

Other savings plans

In addition to these common savings plans, there are other options for building wealth. Government-subsidised Riester savings plans are considered retirement products in Germany. They combine private contributions with government allowances and possible tax benefits. The savings plan itself typically invests in funds or insurance products.

Certificate savings plans, on the other hand, invest in certificates that track specific underlying assets such as shares, commodities or indices. These plans can follow various investment strategies, such as capital protection or participation in specific market movements. They give you flexibility and allow you to seize specific market opportunities.

A building savings contract is also technically a savings plan for building wealth. It combines regular saving with a low-interest loan for buying or building property. After a savings phase, the investor is granted a building loan – a popular method for financing property in Germany.

Who is a savings plan suitable for?

A savings plan is highly relevant for anyone looking to start building wealth, whether with small amounts or a slightly larger budget.

• Retirement planning: A savings plan helps build wealth for retirement. Through regular contributions and the compound interest effect, investors can accumulate a substantial amount that offers financial security in retirement. ETF savings plans are particularly popular here as they provide broad diversification and potentially high return opportunities.

• Saving for children: Setting up a savings plan is a way to start building wealth early for the future of children or grandchildren. Long-term investments create financial flexibility, for example for university, a driving licence or starting a career. A savings plan can also help children better understand the value of money.

• Special goals: Round-the-world trip, property, new car or money for a big celebration? With regular contributions to your savings plan, you’ll move step by step closer to any of your goals.

With the Bitpanda savings plan, you invest simply, securely and reliably. Build wealth by investing in crypto, shares, ETFs, commodities or Bitpanda crypto indices – weekly, fortnightly or monthly. An annual savings plan is also possible. Adjust your plan anytime and stay focused on your long-term financial goals while retaining full control of your strategy. Set up your Bitpanda savings plan today and make smarter investing easy!

Advantages of a savings plan

Here are the main advantages of a savings plan at a glance:

• Low entry threshold due to flexible savings amount (change amount and interval as desired).

• Wide choice of investments and securities (e.g. shares) suitable for savings plans.

• Risk diversification possible through investment in various index funds.

• Convenient money management, as savings plans automatically execute set purchase orders.

• Transparent insight into performance and expected returns.

The cost-average effect: When you invest a fixed amount monthly, you automatically buy more units when prices are low and fewer when prices are high. This lets you benefit from a lower average price in the long run. The following graphic shows an example of the cost-average effect in a savings plan compared to a one-off investment.

Risks of a savings plan

Like any investment, a savings plan is not completely free of risk. These are the risks you should be aware of:

• Despite the cost-average effect, your holdings are still subject to market fluctuations, which can cause short-term negative developments in shares, ETFs or index funds.

• There is no guaranteed return for savings plans and past performance is not a reliable indicator of future results.

• Depending on the provider, you might not have immediate access to your savings, as the securities may need to be sold first.

• Execution fees or ongoing management costs may reduce your savings contributions.

• Not every savings plan suits every investor and risk profile, so it's important to understand the risks of the chosen securities.

Good to know: If you regularly review your investments, stay informed about your product and set realistic expectations for performance, you can reduce risks. A savings plan is about building solid wealth with patience and avoiding panic selling.

How to set up a savings plan

You can set up a savings plan in just a few steps:

1. Set goals: Think about what you want to save for (e.g. retirement, property purchase, children).

2. Choose suitable investment products: Learn what an ETF savings plan is, for example, and decide whether to invest your contributions in ETFs, funds, shares or other securities.

3. Open a securities account: Choose a suitable provider and open an account before starting to invest.

4. Set your savings amount: Decide how much money you want to invest monthly, quarterly or annually.

5. Read the key information document: Get informed about the chosen investment product (name, manufacturer identity, risk and return profile, fees, plan costs, etc.) by reading the key information document carefully.

6. Set up the savings plan: Create your savings plan in your securities account by selecting the desired product and entering the savings amount.

7. Activate automation: Ensure that the monthly contributions are automatically debited from your account.

8. Choose how returns are handled: Decide whether returns should be reinvested (accumulating) or paid out (distributing).

9. Review regularly: Monitor your investments and adjust the monthly savings amount if needed.

With the Bitpanda savings plan, you can easily set up your personal savings plan via our user-friendly platform or mobile app. You’ll benefit from a wide range of ETFs, funds and other investment products that you can customise to your preferences.

More topics on investing

A monthly savings plan is just one exciting area in the world of investing. Are you interested in how to budget for investing or what the magic triangle of investing is? You’ll find plenty to read in our Bitpanda Academy articles to deepen your knowledge.

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