Germany is one of the best places in Europe to start investing, and ETFs (Exchange-Traded Funds) are the simplest way to do it. The broker landscape is excellent, fees are among the lowest globally, and the tax treatment is actually quite favorable once you understand it. If you've been keeping your savings in a bank account earning 2%, this guide is for you.
Why ETFs?
An ETF is a fund that tracks an index, like the S&P 500 or the MSCI World. Instead of picking individual stocks (which statistically underperforms), you buy a single ETF and instantly own tiny pieces of hundreds or thousands of companies. The MSCI World ETF, for example, holds about 1,500 companies across 23 developed countries.
The average annual return of the MSCI World over the past 30 years has been about 8-10% before inflation. Compare that to the 2-3% you're getting on a savings account. The math speaks for itself.
Choosing a Broker
Germany has excellent online brokers. Here are the top picks for expats:
Trade Republic
The most popular broker in Germany. Savings plans are completely free (no fees at all), single trades cost 1 EUR, and they currently pay 3.25% interest on uninvested cash. The app is clean and available in English. The downside: mobile-only, no desktop version.
Scalable Capital
Similar to Trade Republic but with a desktop version. Free ETF savings plans on the free tier, and they also pay interest on cash. The interface is more complex, which can be a pro or con depending on your experience level.
Pro Tip: Start with a Sparplan (savings plan) of 25-50 EUR per month into a single World ETF. You can increase it later. The key is to start, not to start big.
Which ETF to Buy
For beginners, keep it simple. One ETF is enough to start:
- MSCI World ETF (e.g., iShares Core MSCI World, ISIN: IE00B4L5Y983) - 1,500 companies across developed markets. This is the one-fund solution
- FTSE All-World ETF (e.g., Vanguard FTSE All-World, ISIN: IE00BK5BQT80) - similar but includes emerging markets too
Both are "accumulating" (thesaurierend), meaning dividends are automatically reinvested. This is more tax-efficient in Germany than distributing ETFs.
Setting Up a Sparplan
A Sparplan is an automated savings plan that buys a fixed EUR amount of your ETF every month. Here's why it's brilliant:
- It's automatic - set it once, forget about it. The money leaves your account on the same day each month
- Cost averaging - you buy more shares when prices are low, fewer when high
- No timing the market - you don't need to decide when to buy
- Free on most brokers - Trade Republic and Scalable charge nothing for Sparplan execution
Tax Treatment of ETFs in Germany
Germany taxes investment gains at a flat rate of about 26.375% (25% capital gains tax + solidarity surcharge). But there's good news: you get an annual tax-free allowance (Sparerpauschbetrag) of 1,000 EUR per person (2,000 EUR for married couples). Set up a Freistellungsauftrag (tax exemption order) at your broker so the first 1,000 EUR of gains aren't taxed.
For accumulating ETFs, Germany applies a Vorabpauschale (advance flat-rate tax) each January. It's small and your broker handles it automatically. Don't let this scare you. The actual amounts are minimal.
Important: Set up your Freistellungsauftrag at your broker immediately after opening your account. Without it, you'll be taxed from the first euro of gains and have to claim it back in your tax return.
How Much Should You Invest?
Only invest money you won't need for at least 5-10 years. ETFs can drop 30-40% in a bad year (2020, 2022), and you need to be able to sit through that without selling. A good starting framework:
- Emergency fund first - 3-6 months of expenses in a savings account
- Then invest - whatever you can consistently afford, even 25 EUR per month
- Increase over time - as your salary grows, increase your Sparplan
Common Mistakes
Don't try to time the market. Don't buy individual stocks until you have a solid ETF foundation. Don't check your portfolio every day. And don't panic sell during a downturn. The investors who do best are the ones who set up a Sparplan and then genuinely forget about it for years.
One more thing: avoid your German bank's investment products. Sparkasse and Volksbank love to sell expensive actively managed funds with 1-2% annual fees. Over 30 years, that fee difference eats a staggering amount of your returns. Stick with low-cost index ETFs through an online broker.