If you want to live in Germany as an Expat, you have to immediately familiarize yourself with a lot of things. A central theme is how money and finances work in Germany.
Below you will find the main topics you should immediately familiarize yourself with in order to enjoy living in Germany as an Expat.
For many Expats living in Germany, a good bank account in Germany is a must. Often times, it only becomes clear whether the bank account that you already have in Germany is a good one when you have a particular challenge.
German banks offer different bank accounts. But which bank account is right for you?
When choosing a German bank account, you can choose between many different account types. There is something suitable for every wish: be it to save money for a new car or to keep money safe but still be able to use it at any time.
Traditional bank accounts offered by German Banks
The following table gives you a brief introduction to the most important German bank accounts.
|Current account (Girokonto)||Current accounts are used for the daily processing of your payment transactions . For example, you will receive your salary on this bank account. |
With checking accounts you will receive a girocard, also known colloquially as an “EC card”, with which you can pay cashless and withdraw money from machines.
As a rule, these accounts do not bear interest. In the meantime, however, there are also banks that deviate from this. Some financial institutions charge account management fees for checking accounts – a comparison will help you to find the cheapest offer for you.
|Interest-bearing bank accounts (Verzinste Bankkonten)||In contrast to current accounts, savings accounts are not intended for payment transactions. Instead, this bank account is used to invest money or to save credit . |
In addition to the classic savings book, overnight and fixed deposit accounts are enjoying growing popularity.
|Savings account (Sparbuch)||The classic savings account is the most common form of investment in Germany. Above all, this bank account shines with its risk-free form of savings , which is also suitable for small amounts and which can be accessed relatively quickly.|
In addition, keeping a savings account is free. Many banks now offer the so-called SparCard instead of the classic savings book. The principle is the same, but with the help of the card you can also dispose of your money at the ATM and no longer have to go to the counter.
The disadvantage of this bank account, however, is the low interest rates , which are usually even below the inflation rate.
|Money account (Tagesgeldkonto)||Similar to the classic savings book, the overnight money account has no fixed terms: As a rule, you can even access your deposit in any amount every day – this is not possible with a classic savings book. |
In addition, the overnight money account, like the savings book, is suitable for regular savings.
It is a risk-free form of saving, as overnight money accounts within the EU are subject to the deposit protection of the country from which the bank comes.
This bank account pays better interest than a traditional savings account and has a variable interest rate.
|Fixed deposit account (Festgeldkonto)||In contrast to overnight money accounts, time deposit accounts have a fixed interest rate that is fixed for the entire term . |
A fixed-term deposit is a time deposit: You invest a certain amount for a fixed term that you have previously agreed with your bank. The term can be one month or several years. Of the three savings accounts, the fixed-term deposit is the bank account with which you receive the highest interest rate.
However, before you graduate, you should think carefully about how much money you can put away and for what time – because you usually cannot dispose of your money early . And if you do, you often pay on it.
|Credit card account (Kreditkartenkonto)||If you have a checking account, you can apply for a credit card if you have a positive credit rating . Your creditworthiness is assessed with the help of the SCHUFA. |
As with the Girocard, you can use a credit card to make cashless payments and withdraw cash from the machine.
The difference to the EC card is that the money is not immediately deducted from your current account. Instead, it is posted to your credit card account and then withdrawn from your checking account at regular intervals – usually once a month.
The credit card account grants you a credit : You can then dispose of this amount even if your credit card account does not have any credit.
The best digital banks in Germany
As an Expat, you can also register with a German digital bank by downloading the respective app of your chosen bank onto your smartphone.
• You will need some of your personal information to register, including your full name, date of birth, address and email address.
• You will need to confirm your identity and possibly deposit funds into your account to activate it.
• Your bank account will then be created and activated.
Below is a list of the best digital banks in Germany
|Revolut||Revolut is a global finance app that offers budgeting tools, international currency exchange, travel insurance, ways to buy cryptocurrencies, virtual cards and much more.|
|N26||This is a digital bank account with which you can save and also set up budgets. With N26 you can transfer money to other N26 users, take advantage of optional travel insurance and benefit from a cashback program.|
|Bunq||Bunq is a bank account for so-called global citizens and offers up to 25 bank accounts with individual IBANs, savings and budgeting tools, transfers via Transferwise and there are no fees for exchanging foreign currencies.|
|Tomorrow Bank||This is a money management solution with a difference. Tomorrow offers a useful account with free ATM withdrawals and foreign currency spending (if you choose the Premium account), but you can also help the environment. With Tomorrow you can offset your carbon footprint and avoid investing in harmful industries.|
|Norisbank||Norisbank is a subsidiary of Deutsche Bank and offers a free current account. You can benefit from expense notifications, zero ATM withdrawal fees in thousands of locations, and an optional line of credit.|
|Fidor Bank||With this digital bank you can easily manage your money within the app, as well as buy and sell cryptocurrencies and trade in foreign currencies. Fidor Bank also offers an optional overdraft facility and a range of insurance policies.|
|Monese||With Monese you can open a UK checking account without proof of address. You can also receive real-time notifications and make ATM withdrawals and foreign currency transfers up to a certain limit.|
Expats living in Germany are subject to German taxes especially if they earn income in Germany.
Just like every Germany resident, Expats have to pay income tax throughout the year. This is usually done by the employer through tax deductions from each paycheck. Adjustments are then made at the end of the year for possible under or overpayments.
|Taxation||The period of the fiscal year corresponds to the calendar year (January 1 – December 31). |
In Germany, employees pay their income tax in the form of withholding tax on wages (Lohnsteuer).
The Ministry of Finance (Finanzamt) of the state of residence is the contact person for income taxation in Germany.
|Wage Tax (Lohnsteuer) and Income Tax (Einkommensteuer)||Every Expat earning income in Germany has to pay either or both of the following taxes: |
• The Wage Tax (Lohnsteuer) is withheld at source from compensation. Wage tax is collected at source and paid directly to the Finanzamt (tax office) by the employer.
• Income from other sources other than wages, such as self-employment, investments etc. are liable for Income tax (Einkommensteuer). Unlike the wage tax, you have to pay the income tax directly to the tax office.
|Solidarity Surcharge||In addition Wage tax and Income xax, there is the “solidarity surcharge” of 5.5% of the tax, to cover the continuing costs of integrating the states of the former East Germany.|
(NOTE: Starting in 2021 the “solidarity surcharge” will be eliminated for 90% of taxpayers. It will be reduced for another 6.5% of taxpayers depending on their earnings. The top 3.5% of earners will continue to pay the full surcharge in full).
|Church tax (Kirchensteuer)||When you move to Germany, you will have to register yourself. One of the things that you will be asked is your religion. The church tax was introduced in compensation for the nationalization of religious property.|
If you declare yourself Protestant, Catholic or Jewish you are liable to pay the church tax, which the tax office collects on behalf of religious organizations in Germany. It is currently 8% in Bavaria and Baden-Württemberg and 9% in all other federal states. If you have no declared religion, you will not pay church tax.
The church tax on your salary or wages is retained directly by the employer and submitted to the tax authorities who then forward it to the local church.
|Tax Deductions||You are allowed to claim tax deductions from your income in Germany.|
Automatic deductions for social programs:
• Retirement deductions
• Health insurance
• Long-term nursing care
NOTE: Deductions towards these social programs are shared equally between the employer and the employee. The employee’s contribution is considered tax deductible while the employer’s contribution is not.
Types of deductions that Expats can include in their income tax filings:
• Children under 18 (or under 27 if still attending school and without earnings)
• Specified insurance premiums
• Charitable contributions
• Political contributions to German entities up to certain limits
• Illness and other unavoidable extraordinary expenses above a certain limit
|Filing tax returns|
The seven most common insurances in Germany
As an Expat in Germany, you will find that Germans are considered overinsured. But a look at the most common types of insurance shows that many citizens afford dangerous loopholes in insurance coverage
The Germans supposedly prefer to play it safe. According to the consumer advice center, every German citizen should spend an average of more than 2,000 euros per year on insurance.
The most popular insurance in Germany
The warning is based on figures from the Federal Statistical Office. Accordingly, there were significant insurance gaps among German citizens in 2018, as the GDV announced.
These are the most common insurances in Germany:
- # 1 Private liability insurance: 83 percent of households
- # 2 car insurance: 81 percent
- # 3 Household contents insurance: 76 percent
- # 4 Legal protection insurance: 46 percent
- # 5 Private accident insurance: 42 percent
- # 6 Disability insurance: 26 percent
- # 7 Term life insurance: 17 percent
Overview of the types of insurance in Germany
There are many small risks and dangers that can make life difficult at times. With the right coverage, you no longer have to worry about this. There is a corresponding insurance offer for almost every risk, tailored to individual security needs. Below is a summary of the types of insurance that Expats in Germany will find very useful:
Occupational disability insurance
Anyone who becomes unable to work or can no longer work for health reasons is entitled to a disability pension. But according to the German Pension Insurance Association, this has been falling since 2000. In 2011 women received an average pension of 561 euros, men received 568 euros. Since the state benefits are by no means sufficient to provide for yourself, and possibly your family, it is essential to take out disability insurance.
Every fourth German becomes unable to work before retirement due to illnesses such as cancer, cardiovascular diseases or diseases of the psyche. With the disability pension, the state only offers very poor basic protection and by no means makes up for the financial gap.
In principle, every employed or future employed person must protect himself from the financial consequences of an occupational disability. The risk applies to all professions, regardless of whether they are mental or physical. Young professionals in particular should think about taking out BU insurance at an early stage. The risks of becoming unable to work include not only physical limitations due to overwork or accidents, but also mental illnesses such as depression. Entitlement to statutory disability pension only applies after a waiting period of 5 years. There is no insurance cover until then.
Statutory health insurance
The statutory health insurance pays medical treatment costs, for example at the family doctor, dentist or in the hospital. Certain basic services are offered that are identical for all providers. There are also numerous additional benefits, such as special pension programs or special offers for families with children. Whether or which additional services are used is left to the insured person’s own preferences.
Everyone has to seek medical treatment at some point. Regardless of whether it is just a vaccination or a hospital stay, there are always costs that can rarely be borne by the patient alone in the long term. The statutory health insurance as compulsory insurance bears these costs.
Statutory health insurance is compulsory insurance prescribed by the state. This means that every German citizen must be a member of a statutory health insurance company, unless they are already privately insured. The choice from one of the around 90 statutory health insurance funds is completely free, as they are obliged to accept anyone who wants to join.
Liability insurance protects the insured against the claims that others make in the event of damage caused by him. Personal injury, property damage and financial loss are insured in private liability insurance. If you take out private liability insurance, you can leave claims settlement to the insurer. If serious personal injury occurs, there are often lifelong payment obligations.
Every person can cause damage to others through a small mistake and is then obliged to pay compensation. Small inattentions often result in high claims for damages.
Private liability insurance is one of the most important types of insurance. A degree is generally recommended for everyone, regardless of whether they are individuals, couples or families.
The contents insurance covers the entire contents of the insured apartment. With household contents insurance, you protect your entire property against burglary, robbery, fire, vandalism, lightning, explosion, tap water, storm and hail damage.
Unusual risks such as damage from a vehicle impact or plane crash are also covered by the insurer. Depending on the tariff, the insured person can even receive a replacement in the event of damage to frozen food following a power failure, loss of keys or damage caused by civil unrest.
Even a small carelessness, such as a fallen candle, can lead to an apartment fire and thus to a financial disaster. Nobody likes to imagine this situation, but an unimaginable amount can often happen at home. So that tenants or owners are not left empty-handed, home contents insurance protects them with replacement value replacement and reliable claims settlement.
Home insurance can be important even for young people. Household contents protection from your parents is no longer available when you move out into your first apartment, now you have to take care of the right insurance cover yourself. In general, household insurance makes sense for every tenant and landlord.
Dog liability insurance
There are around five million dogs in Germany, but not even half of their owners are properly insured in the event of damage. Dog liability is only compulsory in a few German federal states, but it is generally recommended to every dog owner. The insurance cover not only includes injuries to people caused by dogs, but also damage to rented property at home and abroad as well as so-called “covering damage” to bitches.
No matter how well behaved and sociable a dog is, the owner can never have one hundred percent control over his pet. If the own dog causes damage to other people or objects, the owner is fully liable. In the case of serious physical injuries or traffic accidents caused by dogs, the financial damage can quickly run into the millions.
Dog liability insurance is recommended for every dog owner, regardless of what breed the pet belongs to. In the federal states of Berlin, Saxony-Anhalt, Hamburg, Lower Saxony and Thuringia, however, it is already mandatory for every dog owner. In some other federal states, insurance cover is only mandatory for dogs classified as dangerous or conspicuous.
Motor vehicle liability insurance is compulsory for all road users in Germany. It covers the costs that arise in the event of a traffic accident through your own fault to other people or vehicles. In order to be reimbursed for the costs of damage to your own vehicle, additional insurance is necessary. The partial comprehensive insurance covers, among other things, damage caused by theft or storms. The fully comprehensive insurance, on the other hand, also covers damage to your own car in the event of accidents caused by yourself.
As the owner of a vehicle, you are constantly exposed to danger in traffic. Regardless of whether accidents are caused by your own or third party, the damage to other people and vehicles can quickly run into the thousands. Personal injuries in particular often result in lengthy and expensive treatments for which the person who caused the accident pays.
Every vehicle owner in Germany must have at least one car liability insurance for their car. With mostly the same services, there are big differences in terms of price, so it’s worth comparing here. Partial and fully comprehensive insurance is recommended for new cars or cars that are only a few years old, the total loss of which would result in a high financial loss.
Private health insurance
In many cases, the services provided by private health insurance companies go beyond the range of services offered by the statutory health insurance funds. As a patient with statutory health insurance, you have to pay for these services yourself. Private health insurance enables, for example, single or double rooms in the hospital, treatment by the head physician or higher-quality dental treatment.
In some cases, the insurance cover provided by the statutory health insurances is insufficient. Often there is a desire for higher quality treatments that are not made possible by the statutory health insurance. In such cases, private health insurance is the best option, where the desired services can be selected from a wide range.
Admission to private health insurance is subject to certain conditions. While the self-employed, freelancers and civil servants can switch to private health insurance voluntarily and regardless of income, salaried employees must exceed the so-called annual wage limit. This means that they currently have to earn at least 54,900 euros a year to be allowed to join a private health insurance scheme. A health check is also mandatory for all professional groups, on the basis of which the private health insurance company decides on admission and its conditions.
Private long-term care insurance
83% of the 2.5 million people in Germany who are constantly dependent on care are 65 years and older. They need outside help with daily activities such as getting up, washing, getting dressed, walking, standing, climbing stairs, eating or drinking. The statutory long-term care insurance then pays a maximum amount of 1550 euros in care level III, depending on the need. However, since a place in the nursing home costs up to 3500 euros, the money from the nursing care insurance fund is nowhere near enough. This difference must be financed by the needy themselves or their relatives. The costs will continue to rise in the future, and an aging society will have to pay for more and more people in need of care.
Around 2.5 million Germans are already in need of care. The costs for a care place with full inpatient care in care level III can cost more than 3,500.00 euros per month on average. Statutory long-term care insurance only offers basic coverage. In order to close this gap and to protect your relatives from being burdened with payments, it makes more than sense to take out private long-term care insurance.
Private long-term care insurance is a very useful extension of the personal insurance portfolio and makes sense for all professional groups such as employees, self-employed and freelancers as well as civil servants or civil servant candidates. After all, almost every second person will need care in the course of their life, so that the statutory insurance can hardly offer comprehensive benefits.
Legal protection insurance
Legal protection insurance covers the costs of lawyers, advice and mediation. However, only if the dispute is not older than the insurance cover. The insurers offer the right insurance cover for a wide variety of areas in the customer’s life, be it work, leisure, family, traffic or living.
Whether it’s trouble with the landlord, the employer or after a traffic accident – a legal dispute can be very expensive. If the case goes to court, the loser has to pay the legal costs, which are often over a thousand euros. Even with an out-of-court settlement, high legal fees must be expected.
Legal protection insurance offers you, as a single or your family, the necessary financial support and security – regardless of whether you are a defendant or a plaintiff, whether you win or lose.
The Riester pension is a private pension option that is subsidized by the state. Every saver receives the basic allowance. However, in order to be entitled to 100% of the state funding, at least 4 percent of the gross income must be paid into the Riester pension annually, but no more than 2,100 euros. Parents also receive a child allowance for each child eligible for child benefit, although only one parent can receive this allowance. However, young professionals can apply for a one-time bonus.
The state pension scheme is normally no longer sufficient to maintain the previous standard of living. Without private provision, there is a rapid risk of financial gaps and a reduction in the previous quality of life. It is therefore essential to take the financial future into your own hands in old age.
The Riester subsidy is basically only reserved for people who are subject to pension insurance. The self-employed can therefore normally not receive any allowances. It is only possible in a few exceptional cases, provided the spouse is directly eligible for funding and fulfills certain conditions.
Term life insurance
Term life insurance serves as protection for the bereaved. In the event of the death of the insured person, they receive a specific, previously determined insurance benefit, which serves as financial security for several years for each term. Term life insurance is important for people who are economically dependent on one another and who would face enormous financial difficulties after the death of the insured person.
Term life insurance covers the risk of death and serves as protection for survivors. For example, if a young father dies, the bereaved family faces enormous financial challenges. The state widow’s and orphan’s pension normally only covers a fraction of the costs.
Term life insurance is particularly recommended for young families. If one parent dies, the financial burden on the bereaved increases enormously, as a second income or even the main breadwinner is lost. Term life insurance is also worthwhile for builders, as in the event of death the surviving dependents are solely responsible for repaying the house’s debts. Term life insurance can also be useful for business partners who want to protect each other.
The Rürup pension is a retirement provision that is subsidized by the state. In contrast to the Riester pension, not only employees, but also self-employed and freelancers can benefit from the state subsidy. In this case, there are no direct government subsidies, Rürup savers benefit from the high tax deductibility of the contributions. From the start of retirement, the pension payments are funded and paid for life.
The state pension nowadays only covers a fraction of the actual costs. In most cases it is no longer possible to maintain the previous standard of living and financial difficulties threaten. Additional private insurance ensures extensive financial support and the maintenance of quality of life even in old age.
Freelancers and self-employed people who earn particularly well benefit from the Rürup pension, as they benefit from the annual tax advantages in their professional life. In general, the Rürup pension is better suited for high earners who can afford the high contributions up to retirement. Officially, however, there are no restrictions, so that the state subsidy is available to everyone who wants to save for retirement with the Rürup pension.
Good accident insurance covers all costs that arise during and as a result of an accident. Most accidents happen during leisure time, but statutory accident insurance only covers accidents during working hours. Accident insurance as a supplement to occupational disability insurance is therefore recommended in order to be financially protected against consequential costs and partial or full disability.
An accident happens every four seconds in Germany, that is around 9 million accidents per year. High costs arise not only from the accident itself, but above all from accompanying and follow-up costs, such as patient transport, need for care or disability. Without adequate coverage, you will have to bear these costs yourself for the most part.
Accident insurance is particularly recommended for people with high-risk hobbies. These include, for example, motorcycle and racing cyclists, mountain bikers and high-spirited skiers and snowboarders. Accident protection is also useful for seniors, as they are particularly at risk from falls. For children, accident insurance offers a good alternative to occupational disability insurance, which is often not yet available for children.
As the lessor of real estate or land, you are responsible for their safety and their proper condition. As the landlord, you must bear the costs for damage caused by tap water, fire, storms or lightning strikes. A residential building insurance, which covers the so-called elementary damage, thus prevents a high financial burden in the event of damage. The insurance cover also applies to garages, sheds and other outbuildings that are located on the property.
Owners of real estate must be responsible for the consequences if something happens to other people in their house or on their property or if someone else’s property is damaged. Such damage often results in high financial damage for the landlord without the right insurance.
Homeowners insurance is recommended for all property owners who rent a house or apartment. Residential building insurance protects against damage to rented property; the landlord’s liability insurance is not sufficient here. Additional protection is also necessary for undeveloped land, here too the owner is liable in the event of an accident.
With additional private dental insurance, you can greatly reduce the high costs of dental treatment and dentures. It pays for dental treatment costs (e.g. prophylaxis treatment, fillings) as well as dental prosthesis treatments (e.g. crowns, bridges, implants, inlays). Depending on the provider, a percentage of the total invoice amount is covered by private dental insurance.
According to a representative survey by the market research institute GfK, more than 40 percent of Germans cannot afford expensive dentures. One in eight even walks around with gaps between their teeth because statutory health insurance only covers basic medical care by the dentist. This means that everything that goes beyond the statutory provisions must be paid for privately.
The private additional dental insurance is interesting for everyone, whether young or old, who is a member of a statutory health insurance. The professional status (employee, self-employed) does not matter.